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i 


NATIONAL    DEBT 

OF 

MEXICO 


HISTORY  AND 
PRESENT  STATUS 


By 
THOMAS  R.  LILL 

OF 

Searle.  Nicholson  a  Lill..  c.  p.  a's. 

NEW   YORK 
1019 


With  an  Introduction  by  HENRY  BRUERE 


NATIONAL     DEBT 

OF 

MEXICO 


HISTORY   AND 
PRESENT   STATUS 


By 
THOMAS    R.    LILL 

OF 

Searle,  Nicholson  &  Lill.  c.  p.  as. 

NEW    YORK 
1919 

With  an   Introduction  by  HENRY  BRUERE 


An««i 


5 

090 

66^ 


CONTENTS 

Title  Page 

PREFACE    1 

FOREWORD    4 

Mexico's   Indebtedness 5 

Mexico's  Chief  Financial  Problems 7 

Annual  Revenues  7 

Annual  Expenditures 8 

Reduction  of  Expenditures 9 

Increase  in  Revenues 10 

Safe  Limit  of  Borrowing 10 

Former  Financial  Reorganization 11 

Origin  of  the  So-called  British  Debt 11 

6%  Loan  of  1824 14 

Considerations  Regarding  the  Loans  of  1823-1824 16 

National  Revenues  18 

Reorganization  of  1831    (1824-1831) 19 

Arrangement  of  1837   (1831-1837) 21 

Settlement  of  1843  (1837-1843) 26 

Conversion  of  1846   (1843-1846) 31 

Conversion  of  1850   (1846-1850) 34 

Conversion  of  1863   (1850-1863) 38 

1863-1885    46 

Other  British   Indebtedness 57 

Diaz  Administration    (1884-1911) 59 

Interior  Debt  59 

Exterior  or  Foreign  Loans 62 

6%   Consolidated  Exterior  Mexican  Debt  of  1888 62 

5%  Loan  of  1899 66 

6%  Loan  of  1890 67 

6%  Loan  of  1893 68 

5%  Consolidated  Exterior  Mexican  Debt  of  1899 69 

5%  Municipal  Loan  of   1889 77 

IJo  Loan  of  1892 77 

4%  Loan  of  1904 77 

Other  Loans  79 

Productive  Works  - 79 

Total  Revenues  of  Government 80 

1911-1918   81 

Financial  Condition  When  Madero  Came  to  Office 81 

Huerta   Administration 81 

Summary  of  6%  Loan  of  1913 83 

Carranza   Regime _ 83 


No.  ritle  Page 

1.  Statement  of  5%  English  Loan  of  1823  Covering 

Period  from  January,  1824,  to  April,  1831 86 

2.  Statement  of  6%  English  Loan  of  1824  Covering 

Period  from  February,  1825,  to  April,  1831 87 

3.  5%  English  Loan  1823— Conversion  of  1831 88 

4.  6%  English  Loan  1824— Conversion  of  1831 89 

5.  English   Loan — Conversion   of   1837 90 

6.  English   Loan — Conversion   of   1843 91 

7.  English   Loan — Conversion   of   1846 92 

8.  English   Loan — Conversion   of    1850 93 

9.  English   Loan — Conversion   of    1863 94 

10.  English   Loan — Conversion   of    1886 95 

11.  Summary  of  Public  Debt 97 

12.  3%  Consolidated  Interior  Debt,  1886 98 

13.  5%  Interior  Debt,  1894 99 

14.  5%  Municipal  Loan  of  1899— Due  January  1,  1919  100 

15.  5%  Consolidated  Debt  1899— Due  1945 101 

16.  59?   Bonds  State  of  Vera  Cruz,  1901— No  Due  Date  102 

17.  5%  Bonds  State  of  Tamaulipas,  1902— First  Series  103 

18.  4%  Gold  Loan  of  1904— Due  1954 104 

19.  SVt   Bonds  State  of  Sinaloa,  1906 105 

20.  5%  Bonds  State  of  Tamaulipas,  1906— Second  Series  106 

21.  5%  Bonds    State    of    Vera    Cruz,    1906— Improve- 

ment Puerto  Mexico 107 

22.  47r   Gold  Loan  of  1910— Due  1945 108 

23.  6%  Loan  of  1913—10  years 109 

24.  6%  Treasury  Bonds,  1914—10  years 110 

25.  Vera  Cruz  Bonds— 1917— Without  Interest Ill 

26.  Borrowed  from  Banks  During  1917  and  1918 112 

27.  47r   General  Mortgage  Bonds — National   Railways  113 

28.  41/2%  Gold  Bonds  Caja  De  Prestamos 114 

Bibliography  „ „ _ 115 


PREFACE 

In  submitting  the  following  report  for  the  consideration 
of  those  concerned  with  Mexican  financial  reconstruction,  a 
brief  word  in  explanation  of  its  origin  seems  desirable.  The 
report  was  prepared  at  my  request  by  Mr.  Thomas  R.  Lill, 
C.  P.  A.,  of  New  York  City. 

In  the  spring  of  1917  I  accepted  the  invitation  of  the 
Mexican  government,  extended  through  the  Honorable  Luis 
Cabrera,  Secretary  of  Finance,  to  study  its  financial  organ- 
ization and  methods.  Mr.  Lill  accompanied  me  to  Mexico 
to  assist  in  the  study. 

At  my  request  Mr.  Lill  remained  in  Mexico  for  nine  months 
following  an  initial  three  months'  study,  to  direct  the  v/ork 
of  the  Commission  on  Financial  and  Administrative  Reorgan- 
ization of  the  Mexican  government  organized  in  October, 
1917,  to  carry  out  the  fiscal  reforms  which  I  had  recom- 
mended to  President  Carranza.  During  his  stay,  Mr.  Lill, 
with  a  considerable  staff,  studied  the  various  phases  of  Mexi- 
can finance  and  carried  into  execution  a  number  of  signifi- 
cant reforms  in  financial  practice.  On  his  return  to  the 
United  States  in  June,  1918,  he  reported  that  President  Car- 
ranza had  indicated  that  the  reconstruction  of  the  country's 
foreign  credit  would  be  undertaken  as  promptly  as  possible. 

It  was  clear  that  the  stability  of  the  new  Mexican  govern- 
ment would  be  achieved  not  only  by  promoting  internal  order 
and  progress,  but  by  resuming  normal  relations  with  other 
nations,  especially  with  the  United  States;  and  that  in  the 
resumption  of  these  relations  the  restoration  of  the  national 
credit  would  play  an  important  part.  We  set  about,  therefore, 
to  prepare  the  way  for  conferences' between  responsible  bank- 
ers in  the  United  States  and  representatives  of  the  Mexican 
government.  Our  efforts  were,  of  course,  fully  and  currently 
reported  by  us  to  the  United  States  authorities,  in  order  that 
the  advice  of  the  State  Department  might  be  obtained  regard- 
ing the  scope  and  method  of  the  undertaking. 

Subsequently,  Mr.  Lill  returned  to  Mexico  City,  and  while 
there  he  collected  the  material  on  the  national  debt  incor- 
porated in  this  report.  The  report  was  prepared  to  make  avail- 
able a  clear  statement  of  the  history  and  present  status  of  the 
debt  for  use  in  any  conferences  that  might  develop  between 
the  government  and  its  creditors  or  foreign  bankers. 

Responding  to  our  recommendation,  President  Carranza 
early  in  the  present  year  dispatched  Senor  Rafael  Nieto,  Act- 
ing Secretary  of  Finance,  to  initiate  discussion  with  Messrs. 
J.  P.  Morgan  &  Co.  in  respect  of  the  resumption  of  payments 


on  Mexico's  national  debt.  Shortly  aftef  Mr.  Nieto's  arrival 
in  New  York  the  formation  of  an  International  Committee 
of  Bankers  was  announced  to  study  and  consider  Mexican 
affairs.  Representatives  of  financial  institutions  in  the  United 
States,  Great  Britain  and  France  constitute  the  committee 
under  the  chairmanship  of  Mr.  Morgan.  It  was  arranged,  there- 
fore, that  conferences  should  be  conducted  with  the  com- 
mittee with  a  view  to  arriving  at  some  basis  for  the  restora- 
tion of  the  credit  of  the  Mexican  government. 

In  the  foregoing  paragraphs  I  have  assumed  that  the  reader 
is  aware  of  the  fact  that  since  1914  the  Mexican  government 
has  paid  neither  interest  nor  sinking  fund  installments  on  its 
debt,  internal  or  foreign.  He  may  not  know  that  since  1910 
there  have  been  eight  successive  governments  in  Mexico,  most 
of  them  merely  military  dictatorships.  For  two  years  Presi- 
dent Carranza  has  conducted  the  government  as  its  consti- 
tutional head.  For  a  year  and  a  half  before  taking  office  as 
President,  General  Carranza  exercised  limited  executive  powers 
in  contending  for  the  control  of  the  country  under  the  slogan 
of  restoration  of  constitutional  government.  Consideration 
of  the  national  indebtedness  has,  therefore,  been  compulsorily 
deferred  until  the  present  time,  because  until  now  no  govern- 
ment since  the  revolution  has  been  in  a  position  to  meet  more 
than  the  current  costs  of  operating  the  government,  including 
maintenance  of  the  army,  which  for  the  past  five  years  has 
been  the  principal  charge  against  the  national  revenues. 

There  have  never  been  lacking  adequate  natural  resources 
to  meet  the  national  obligations  of  the  Mexican  people,  but 
there  has  been  too  frequent  interruption  by  revolutions  in 
the  process  of  converting  these  resources  into  available  wealth. 
No  one  has  yet  discovered  the  way  to  provide  for  such  dis- 
tribution of  wealth  and  enterprise  in  Mexico  as  to  make  the 
bulk  of  the  Mexican  people  themselves  sharers  in  the  obliga- 
tions assumed  in  their  name  by  the  Mexican  government. 
Ignorance,  poverty,  lack  of  opportunity  and  initiative  combine 
to  hamper  these  folk  in  their  long  struggle  for  the  true  inde- 
pendence of  economic  autonomy  and  self-assertion.  The  recent 
revolution  for  the  first  time  looked  to  the  economic  recon- 
struction of  the  nation.  The  new  Mexican  constitution 
contemplates  agrarian  reforms  which  will  promote  small  landed 
holdings  in  place  of  the  present  vast' proprietorships.  Despite 
certain  economic  fallacies  which  must  be  corrected,  it  aims  at 
wider  education  and  generally  aspires  towards  an  economically 
competent  and  emancipated  people. 

Thus  a  beginning,  at  least  to  the  extent  of  constitutional 
intention,  has  been  made  in  upbuilding  a  genuine  national 
credit.  Too  few  investors  in  Mexican  enterprises  or  fiscal 
agents  for  marketing  Mexican  government  securities  have 
recognized  the  fallacy  of  relying  exclusively  on  Mexican 
natural  resources  for  Mexico's  credit.    Too  few  have  kept  in 


mind  the  really  fundamental  basis  of  national  credit,  namely, 
the  capacity  and  character  of  the  people  concerned.  It  is  on 
the  development  of  this  resource,  the  wider  capacity  and 
opportunity  of  the  Mexican  people  themselves,  that  a  lasting- 
reconstruction  of  Mexico's  finances  must  be  built. 

In  dealing  with  the  question  of  national  credit  and  fiscal 
responsibility,  modern  finance  must  take  into  very  careful 
consideration  the  plan  and  outlook  for  increased  welfare  of 
the  foundations  of  that  credit  and  responsibility.  These  are 
not  the  untapped  wells  of  oil  nor  the  fruits  of  the  lands,  nor 
the  unmined  veins  of  gold  and  silver,  but  the  progress  and 
welfare  of  the  human  folk  that  constitute  Mexico. 

HENRY  BRUERE. 

New  York,  September  1,  1919. 


FOREWORD 

The  purpose  of  this  report  is  to  furnish  reliable  information 
concerning  the  present  status  of  the  Mexican  debt  and  the 
various  agreements  which  have  been  made  from  1831  to-date 
between  the  Mexican  Government  and  the  holders  of  its 
securities. 

Mexico's  inability  to  meet  its  obligations  in  the  past  has 
been  caused  by  insufficient  revenues,  primarily  due  to  frequent 
revolutions  and  other  internal  difficulties.  Its  history  in  this 
respect,  however,  is  not  materially  different  from  that  of  many 
other  nations. 

The  chief  injury  to  Mexico's  reputation  and  credit  here- 
tofore has  been  due  to  the  fact  that  its  government  had  not 
developed  sound  financial  and  economic  policies.  Division  of 
authority  through  the  appointment  of  several  agents  where 
one  would  have  sufficed,  conflicting  instructions  and  repudiated 
agreements  have  contributed  to  its  unfortunate  financial 
reputation. 

The  evils  of  such  practices  appear  to  have  been  recognized 
about  1885,  when  modern  business  methods  were  first  adopted 
in  the  conduct  of  government  affairs. 

An  attempt  has  been  made  here  to  show  the  errors  which 
Mexico  has  made  in  the  past,  and  it  is  hoped  that  the  result 
will  be  of  assistance  in  the  solution  of  Mexico's  present  financial 
difficulties  and  serve  to  prevent  similar  errors  in  the  future. 

The  work  of  Joaquin  D.  Casasus,  "Historia  de  la  Deuda 
Contraida  en  Londres,  Mexico  City,  1885,"  has  been  my 
principal  source  of  information  for  the  section  of  this  report 
relating  to  the  Debt  from  1823  to  1885.  A  bibliography  of 
the  other  material  used  is  placed  at  the  end  of  this  book. 

THOMAS  R.  LILL. 


MEXICO'S  INDEBTEDNESS 

At  two  former  periods  in  the  history  of  Mexico  the  financial 
policy  of  the  government  has  played  an  important  part  in  its 
destiny. 

In  1861,  Mexico's  foreign  financial  difficulties  were  largely 
instrumental  in  bringing  about  the  intervention  in  its  affairs 
by  the  triple  alliance  of  Great  Britain,  France  and  Spain 
pursuant  to  the  Treaty  of  London  of  October  31,  1861.  This 
alHance  afterwards  developed  into  the  so-called  French 
invasion,  from  which  sprang  the  short-lived  Second  Empire 
of  Mexico  established  by  Napoleon  III. 

In  1885,  the  reduction  and  consolidation  of  its  debt  and 
the  adoption  of  a  definite  financial  program  restored  its 
national  credit  abroad,  attracted  foreign  capital,  and  started 
Mexico  on  the  road  to  the  most  prosperous  period  of  its  history. 

And  now  at  the  beginning  of  1919,  after  seven  years  of 
revolution,  the  future  welfare  of  Mexico  once  more  depends, 
to  a  large  extent,  upon  the  degree  of  wisdom  and  foresight 
with  which  its  financial  policy  is  developed. 

In  1862,  Manuel  Payno,  Minister  of  Finance,  at  the  request 
of  President  Juarez,  wrote  a  history  of  the  Mexican  debt  with 
the  evident  purpose  of  showing  that  intervention  was 
determined  upon  by  Great  Britain,  France  and  Spain  in  order 
to  collect  the  debts  due  its  citizens. 

In  1885,  Joaquin  D.  Casasus  published  a  serious  study  of 
the  public  debt,  in  which  he  took  the  ground  that  the  inter- 
vention of  1861-1867  was  not  an  attempt  to  collect  unpaid 
interest,  and  that  intervention  by  one  or  more  nations  in 
the  aff'airs  of  another  to  secure  payment  of  funds  voluntarily 
loaned  by  their  respective  citizens  is  not  justifiable. 

Aside  from  the  amounts  which  Mexico  owes  to  subjects  of 
foreign  countries  on  account  of  claims  for  injuries,  death  and 
property  losses,  and  which  have  not  been  determined,  the 
present  indebtedness  of  Mexico  is  as  follows: 

SUMMARY 

PRE-REVOLUTION  DEBT 

Prior  to  June  30,  1911 

Pesos 

Exterior  . „ - - - - - ■•     286,944,250.00 

Interior    „ .._ - ...- « 138,795,550.00 


Total  „„.... - - .- - - ni^j?q,sonno- 

Of  the  above,  the  5%  Municipal  Loan  of  1899  became  due  dif^Ziaary  i, 
1919,  amounting  to  £1,385,590.00  or  Pesos  13,525,815.00. 


POST-REVOLUTION  DEBT 

Period  from  1911  to  1915 

Pesos 

6%  Ten  Year  Treasury  Notes  1913 - _ 166,387,901.00 

6%  Ten  Year  Treasury  Notes  1914 - 21,241,176.00 

Period  from  1916  to  1918. 

Borrowed  from  Banks ^^ - 53,155,734.00 

Employees  for  Part  Salaries „ JZL-a^rd..,.^^.:..^..  6^3,000,000.00 

Vera  Cruz  Bonds „ „ - -  2,942,885.00 

Vera  Cruz  Bonds  awaiting  issue — — 582,685.00 

Total  - 269,310,381.00 

Grand   Total  - 695,050,181.00 

GUARANTEES 

4%  General  Mortgage  National  Rys.  Bonds _ 101,497,150.00 

41/2%  "Caja  de  Prestamos"  Gold  Bonds „ 50,000,000.00 

Total  - - - - 151,497,150.00 

The  67r  Bonds  of  1913  and  1914  were  issued  by  President 
Huerta  and  there  are  good  grounds  for  the  belief  that  the 
issue  of  a  large  portion  thereof  was  tinged  with  fraud. 

INTEREST  ACCRUED  AND  NOT  PAID  AS  OF  DECEMBER  31,  1918. 

Pesos 

Exterior  Debt - - -       61,710,394.00 

Interior  Debt  - - 30,460,502.00 

National  Rys.,  Bonds  (Portion  Guaranteed  by  the  Govern- 
ment)     - - - 9,134,743.00 

"Caja   de    Prestamos"    Gold    Bonds 5,643,661.00 

Bank  Loans   ( Est'd ) .- - - - 3,300,000.00 

67o  Ten  Year  Bonds  of  1913  (Est'd) - 54,908,000.00 

6%  Ten  Year  Bonds  of  1914  (Est'd) - 5,735,117.00 

Total - 170,892,417.00 

This  sum  would  be  reduced  by  the  amount  of  the  interest 
due  on  that  portion  of  the  67r  bonds  of  1913  and  1914  which 
investigation  may  show  are  not  just  obligations  of  the 
government. 

The  above  sums  represent  the  indebtedness  for  which  the 
Mexican  Government  is  directly  liable.  Inasmuch  as  the 
government  has  seized  and  is  operating  the  larger  part  of  the 
railway  lines  of  the  country  it  must,  for  the  time  being  at 
least,  assume  responsibility  for  the  payment  of  the  entire 
railway  indebtedness,  the  exact  status  of  which  will  require 
a  special  investigation  to  determine. 

The  government  is  now  operating  the  following  systems: 
National  Railways  of  Mexico   (under  the  name  of 

Constitutionalist  Railways  of  Mexico). 
Tehuantepec  National   Railway    (Puerto  Mexico  lo 

Salina  Cruz). 
Mexican  Railway   (Mexico  City  to  Vera  Cruz). 


In  addition  to  the  funds  required  to  settle  interest  in  arrears 
and  accrued  principal  on  its  debt,  Mexico  should  have  funds  for 
internal  development,  the  establishment  of  a  Federal  Bank, 
the  reorganization  of  its  railways  and  the  rehabilitation  of 
commerce  and  industry. 

MEXiars  CHIEF  FINAXCIAL  I'HOBLKMS  ARE: 

1.  Settlement  of  present  indebtedness  for  interest 

and  principal  due  and  payable, 

2.  Reorganization  of  its  finances  so  that  the  annual 

debt    charge    will    be    adjusted    to    meet    its 
income. 

3.  Procurement  of  funds  for  industrial,  commer- 

cial and  educational  development. 

It  is  obvious  that  accrued  interest  due  cannot  be  paid  at 
present.  The  settlement  of  this  item  should  be  included  in 
the  gener?l  financial  reorganization,  which  must  of  necessity 
be  based  upon  the  amount  which  Mexico  can  afford  to  pay 
annually  for  debt  service,  now  and  in  the  future. 

The  total  annual  revenues  of  the  Mexican  Republic  at 
present  are  between  P.  120,000.000  and  P.  140.000,000.  Until 
law  and  order  have  been  established,  all  of  this  amount  will 
be  required  for  current  governmental  expenses. 

In  1910-1911  the  annual  debt  service  charge  amounted  to 
P.  25,000,000  or  about  277r   of  the  average  annual  revenues. 

Annual  Revenues 

The   annual   revenues   of   the   nation   for   the   five   years 

ended  June  30,  1911,  were  as  follows: 

Pesos 

1906  1907                   - 115,027,009.00 

1907  1908   * ••••  111,810,934.00 

1908  1909  98,775,510.00 

1909-1910  106,328,485.00 

1910-1911  ZZZZIIZII" 111,142,401.00 

Total  543,084,339.00 

Annual   Average ; 108,616.868.00 

There  is  included  in  this  sum  the  revenues  collected  to  pay 
the  expenses  of  the  Federal  District  and  its  municipalities. 
Under  the  new  Constitution  these  governmental  units  are 
autonomous  and  collect  their  own  revenues.  In  order  to  com- 
pare the  present  revenues  of  the  Federal  Government  with 
the  five-year  period  ended  June  30,  1911,  it  is  necessary  to 
deduct  from  the  above  annual  average  the  amount  collected 
to  pay  the  expenses  of  the  Federal  District,  its  municipalities 
and  the  territories,  which  was  approximately  P.  16,000,000 
per  annum.  Therefore,  the  net  average  annual  revenues  from 
1906-1907  to  1910-1911  may  be  considered  to  be  approximately 
P.  92,000,000. 


Before  the  European  War,  the  annual  revenues  of  the 
United  States  were  about  one  billion  dollars  ($1,000,000,000). 
As  a  result  of  the  war  the  annual  interest  charges  alone  will 
exceed  this  amount,  so  that  the  total  revenues  required  for 
debt  service  payments  will  exceed  50%  of  the  total  revenues 
collected. 

The  situation  in  the  two  countries,  however,  is  radically 
different.  Because  of  our  great  wealth  it  has  been  possible 
suddenly  to  increase  our  national  revenues  eight-fold,  but 
Mexico,'  with  her  meagre  population  and  retarded  industrial 
development,  has  not  been  able  to  increase  her  annual  revenues 
by  more  than  50%  above  the  five-year  average  of  P.  92,000,000. 

Annual  Expenditures 

The  national  budget  for  the  fiscal  year  ended  June  30,  1911, 
gives  an  indication  of  the  needs  of  the  country  in  normal 
times,  taking  into  consideration,  however,  the  old  price  levels 
and  the  restricted  service  program  of  the  government  then 

in  force: 

SUMMARY  OF  BUDGET  1910-1911.  Pesos 

Budget  as  passed  by  Congress _ 104,294,030.00 

•  Pesos         

Deduct: 

Debt  Service 25,458,416.00 

Items  eliminated  for  comparative  pur- 
poses  -.„.... - - 23,816,520.00 

Pensions 883,000.00 

Total  Deductions - 50,157,936.00 

Expenses  of  Administration: 
Divided  as  follows: 

War  Department 21,117,175.00 

All    other    Departments 31,018,919.00 


Total   Expenses  of  Administration - -      52,1.36,094.00 

The  items  eliminated  in  order  to  arrive  at  a  proper  basis 
for  comparison  consist  principally  of  the  cost  of  administration 
of  the  Federal  District  and  its  municipalities,  the  Territories, 
and  the  amounts  provided  for  public  works.  The  administra- 
tive cost  of  several  bureaus  has  been  eliminated  from  the  1918 
budget  due  to  their  discontinuance,  such  as  the  National 
Lottery  and  those  required  for  capital  improvements. 

The  budget  for  the  calendar  year  1918  indicates  the 
changed  conditions: 

SUMMARY  OF  BUDGET,  1918.  Pesos 

Budget  as  passed  by  Congress,  including  Department  of 

Munitions -     208,137,331.00 

Deduct:  Pesos 

Debt  Sei-vice 3,220,000.00 

Pensions -....- 2,190,000.00 


Total  Deductions 5,410,000.00 

Total  Expenses  of  Administration 202,727,331.00 

8 


COMPARISON. 

Pesos 

Budget   1910-1911 52,136,094.00 

Budget  1918 -._ 202,727,331.00 


Increase __. -....„ 150,591,237.00 

Reduction  of  Expenditures 

However,  a  budget  is  only  an  estimate  of  current  expendi- 
tures. Actual  expenditures  may  be  considerably  less  than  the 
amount  provided  in  the  budget,  and  this  desirable  consumma- 
tion has  been  earnesty  striven  for  during  the  year  1918. 

A  law  was  passed  which  provides  that  employees  and 
officers  of  the  army  shall  draw  only  75%  of  their  salary  as 
authorized  by  the  budget.  Due  to  this  measure,  the  monthly 
requirements  of  the  nation,  based  lipon  the  1918  budget,  are 
about  P.  15,500,000. 

In  January,  1918,  President  Carranza  put  into  effect  a 
monthly  budget  and  allotment  system.  In  the  same  month, 
Congress,  at  his  request,  created  a  Department  of  Control  with 
original  jurisdiction  over  all  accounts  of  the  nation.  From 
information  available  at  present,  it  is  believed  that  as  a  result 
of  the  efforts  of  the  new  Department  of  Control  the  monthly 
expenditures  now  average  about  P.  11,000,000,  which  will 
bring  the  annual  expenditures  down  to  P.  132,000,000. 

The  current  deficit  between  revenues  and  expenditures  has 
been  met  by  loans  from  banks  in  Mexico  and  the  United  States, 
the  latter  on  marketable  collateral. 

Prospects  for  Further  Reduction  of  Expenditures 

It  is  probable  that  the  necessary  cost  of  government 
administration  will  never  again  be  as  low  as  it  was  in  the 
last  years  of  the  Diaz  regime.  Whereas  Mexico  was  one  of 
the  cheapest  places  in  the  world  to  live  in,  it  is  now  one  of 
the  most  expensive.  The  cost  of  living  v/ill  probably  decrease 
to  some  extent  with  the  general  resumption  of  agricultural 
and  industrial  operations. 

Excluding  the  amount  required  for  debt  service,  the  cost 
of  government  for  the  five  years  ended  June  30,  1911,  averaged 
about  P.  50,000,000  per  annum  or  P  3.32  per  capita.  On  this 
per  capita  basis,  the  annual  appropriation  bill  of  the  United 
States  would  be  about  P.  332,000,000  or  $166,000,000.  On  the 
other  hand,  the  cost  of  administering  a  very  efficient  govern- 
ment in  the  Philippines  has  never  exceeded  $2.00  or  P.  4  per 
capita. 

However,  a  substantial  reduction  of  expenditures  cannot 
be  expected  until  law  and  order  have  been  re-established  in 
Mexico.  The  extermination  of  banditry  in  Mexico  will  prob- 
ably require  a  large  armed  force  with  consequent  extraor- 

9 


dinary  expense  for  one  or  two  years  longer.  The  situation 
confronting  President  Carranza  is  very  similar  to  that  which 
existed  in  the  Philippines  from  1900  to  1902. 

Increase  in  Revenues 

In  the  present  condition  of  commerce  and  industry  it  is 
not  probable  that  additional  taxation  will  be  imposed. 

The  Revenue  Laws  have  been  generally  revised  during  the 
past  year  and,  while  revenues  have  already  been  increased 
as  a  result,  further  increases  may  be  expected  when  this  new 
legislation  is  fully  effective. 

Safe  Limit  of  Borrowing 

One  conclusion  to  be  drawn  from  a  consideration  of 
Mexico's  financial  policy  is  that  from  1824  up  to  probably  1885 
her  public  debt  w^as  excessive. 

Notwithstanding  the  glamour  surrounding  Limantour's 
administration  of  Mexican  finances  under  Diaz,  and  the  ability 
with  which  he  provided  for  successive  issues  of  securities, 
there  are  grounds  for  belief  that  the  safe  limit  of  borrowing 
had  again  been  exceeded  by  1910-1911. 

Of  the  average  revenues  amounting  to  P.  92,000,000  (after 
deducting  revenues  which  are  not  now  collected  by  the  Federal 
Government),  P.  25,000,000,  or  27.17^,  were  devoted  to  paying 
interest  and  amortization  charges  on  the  public  debt,  leaving 
P.  67,000,000  or  $33,500,000  for  the  conduct  of  the  government 
of  a  nation  of  15,000,000  people. 

The  limit  of  safe  borrowing  cannot  be  determined  by  the 
percentage  of  the  total  revenues  required  for  interest  and 
amortization  payments.  11^/<  of  the  salary  of  a  man  receiving 
$75.00  per  month  would  deprive  him  of  some  of  the  necessities 
of  life,  while  21^/c  of  an  annual  income  of  $1,000,000  would  not 
deprive  him  of  his  luxuries. 

The  amount  of  indebtedness  which  a  man  may  safely  incur 
depends  upon  the  amount  he  can  afford  to  pay  from  his  income 
for  interest  and  amortization  charges.  The  amount  he  can 
afford  depends  upon  what  he  has  left  after  providing  for  the 
necessities  of  life. 

The  same  rules  apply  to  nations  as  to  individuals.  What 
Mexico  can  afford  to  pay  in  debt  service,  thereby  determining 
its  limit  of  credit,  depends  upon  its  total  income  and  the 
amount  of  its  necessary  expenses. 

It  is  probable  that  Mexico's  necessary  expenses  in  the 
future,  after  pacification  has  been  effected,  will  aggregate 
approximately  double  what  thev  were  in  1910-1911,  or,  say, 
P.  100,000,000. 

With  a  present  revenue  of  P.  125,000,000,  it  can  afford 
to  pay  P.  25,000,000  for  its  debt  service  when  military  charges 

10 


are  proportionately  reduced.  During  the  early  part  of  1918, 
the  revenues  averaged  a  little  less  than  P.  10,000,000  a  month. 
The  Minister  of  Finance  states  that  revenues  have  shown  a 
considerable  increase  and  that  they  now  exceed  P.  12,000,-000 
a  n:onth. 

With  a  maximum  of  P.  25,000,000  to  P.  30,000,000  a  year 
which  may  be  utilized  for  debt  service  on  the  basis  of  present 
income,  it  follows  that  the  maximum  debt  which  Mexico  could 
now  support  if  military  charges  were  reduced  is  approximately 
P.  500,000,000. 

Assuming  that  in  the  future  the  railways  and  the  "Caja 
de  Prestamos"  will  take  care  of  the  interest  on  their  bonds, 
the  amount  of  bonds  issued  by  them  and  guaranteed  by  the 
government  may  for  the  present  be  eliminated  from  imme- 
diate calculations. 

With  this  deduction,  the  debt  of  the  government  is  approxi- 
mately as  follows : 

Pesos 

Pre-Revolution  Debt  425,739,800.00 

Post-Revolution  Debt  269,310,381.00 

Interest  170,892,417.00 

Total 865,942,598.00 

If  interest  and  amortization  charges  are  computed  at  ^V^^, 
about  P.  48,000,000  would  be  required  annually  for  these 
purposes,  a  sum  considerably  in  excess  of  the  nation's  present 
ability  to  meet. 

Former  Financial  Reorganizations 

The  present  financial  condition  of  Mexico  is  not  without 
precedent.  At  several  former  periods  the  Republic  was  in 
similar  difficulties  which  were  solved  in  various  ways. 

In  the  chapters  which  follow  an  attempt  is  made  to  show 
the  successive  financial  reorganizations  which  have  taken  place 
since  1824,  and  to  describe  the  financial  policy  of  the  govern- 
ment since  its  reorganization  in  1886  to  1911  and  from  1911 
to  1918. 


ORIGIN  OF  THE  SO-CALLED  BRITISH  DEBT 

Mexico  began  its  war  of  independence  against  Spain  on 
September  16,  1810.  This  war  was  brought  to  a  successful 
conclusion  on  August  24,  1821.  The  first  act  of  the  new  nation 
was  to  set  up  a  provisional  government  of  five  regents.  A 
congress  was  organized  which  elected  Augustin  Iturbide 
Emperor  of  Mexico.  On  May  19,  1822,  he  took  the  oath  of 
office  before  Congress,  and  was  crowned  and  anointed  on 
June  21,  1822. 

11 


Emperor  Iturbide  abdicated  on  March  20,  1823,  having  been 
in  power  less  than  one  year.  The  advocates  of  a  more  liberal 
government  were  then  successful  in  establishing  a  republican 
form  of  government,  and  a  constitution  much  like  that  of  the 
United  States  was  adopted  on  October  4,  1824. 

The  first  Mexican  foreign  loan  was  authorized  in  a  decree 
of  June  25,  1822,  promulgated  by  Emperor  Iturbide,  which 
provided  for  a  loan  of  P.  25,000,000  to  P.  30,000,000. 

Negotiations  for  placing  this  loan  in  foreign  countries 
were  entrusted  to  representative  Mexicans,  but  all  of  their 
efforts  proved  unsuccessful.  The  results  were  so  unsatis- 
factory that  on  May  1,  1823,  Congress  declared  void  the  decree 
of  June  25,  1822,  and  authorized  a  new  foreign  loan  of 
P.  8,000,000. 

Thereupon  the  Mexican  Government  began  negotiations  for 
a  foreign  loan  with  B.  A.  Goldschmidt  &  Company,  Bankers, 
of  London.  These  negotiations  resulted  in  a  contract  for  a 
loan  of  £3,200,000  at  57^  which  was  considered  to  be 
within  the  authorization  granted  by  Congress,  since  the 
amount  realized  equalled  the  amount  desired,  and  which  was 
approved  by  the  Mexican  Government  on  May  14,  1824.  This 
loan  was  secured  by  a  mortgage  of  one-third  of  all  the  Mexican 
customs  receipts. 

In  accordance  with  the  terms  of  this  agreement,  the  bonds 
were  purchased  by  Goldschmidt  &  Company  at  55%,  less  5% 
commission.  Other  deductions  on  account  of  interest  paid 
before  the  bonds  were  issued,  expenses,  etc.,  as  shown  in  the 
statement  on  Page  13,  reduced  the  amount  received  by  the 
Mexican  Government  to  £1,139,660.*  This  transaction  was 
the  corner  stone  of  the  insecure  financial  structure  known  as 
the  British  Debt  because  the  loans  constituting  it  w^ere  nego- 
tiated in  England. 

The  following  statement  shows  the  expense  of  placing  the 
5%  loan  of  1823  and  the  amount  received  by  the  government. 

*Historia  de  la  Deuda  Contraida  en  Londres. — Joaquin  D.  Casasus, 
Mexico  City,  1885. 


12 


5%  LOAN  OF  1823. 
STATEMENT 


Par  Value 

Debit 

Credit 

of  Bonds 

February   7,   1824 

sale  of  bonds  at 

55%  -.- 

£1,760,000. 

£3,200.000 

5%  Commission 

£    160,000.00-  0 

Interest    paid     to 

bankers  prior  to 

issuance    of 

bonds 

189,592.16-  9 

Expenses  of  issue 

2,376.15-  0 

Balance    

1,408,030.  8-  3 

Totals  

1,760,000.  0-  0 

1,760,000.  0-  0 

Balance  down  rep- 

senting  net  pro- 

ceeds     - 

1,408,030.08-  3 

Received  from 

proceeds  of  1824 

loan    to    amor- 

tize bonds  

611,977.14-  9 

Received  from 

proceeds  of  1824 

loan   for   inter- 

est  

56,518.10-  8 

Profit  on  exchange 

544.06-10 

Interest  and  com- 

mission     on 

bonds  issued  

149,934.08-10 

Interest  paid  from 

proceeds  of  1824 

loan  

56,518.10-  8 

Cost    of    bonds 

amortized   from 

retained      prin- 

cipal    

115,902.19-  6 

Cost    of    bonds 

amortized  from 

1824  loan  -.. 

611,977.14-  9 

1,069,500 

Present     to     Sir 

John    William 

Lubbock  

3,077.06-  9 

Balance 

1,139,660.00-  0 

2,130,500 

Totals 

2,077,071.     -  6 

2,077,071.  0-06 

3,200,000 

Balance  down  rep- 

resenting    cash 

actually   re- 

ceived   by    gov- 

ment 

1,139,660. 

Bonds  outstanding 

after   amortiza- 

tion as  above 

2,130,500 

Interest    rate    on 

amount  received 

9.43% 

13 


6%  LOAN  OF  1824 

The  second  loan,  closely  following  the  first,  was  authorized 
by  Congress  on  August  27,  1823  and  fixed  at  P.  20,000,000. 

As  a  result  of  the  authorization  granted  by  Congress,  and 
before  the  first  loan  was  consummated,  several  English  bank- 
ing firms  established  in  Mexico  had  offered  to  place  the  loan 
in  London. 

Among  others,  Robert  P.  Staples  submitted  a  proposal  on 
June  28,  1823,  which  was  favorably  considered  and  was  about 
to  be  accepted  when  Barclay,  Herring,  Richardson  &  Company 
submitted  a  counter-proposal  to  the  government. 

Robert  P.  Staples  appears  to  have  represented  Thomas 
Kinder,  of  London,  who,  while  insolvent  during  1822,  had 
contracted  to  float  a  loan  of  ^^1,200,000  for  the  Government 
of  Peru. 

Before  the  Staples  contract  could  be  approved  the  Barclay, 
Herring,  Richardson  &  Company  proposal,  while  not  as  favor- 
able in  its  terms  as  that  of  Staples,  was  accepted  by  the 
Minister  of  Finance  on  August  18,  1823,  and  submitted  to 
Congress  for  approval.  It  provided  for  a  loan  of  ^^ 3,200,000 
to  be  taken  by  the  bankers  at  70%  with  10%  commission. 

Thei-eupon,  Staples  wrote  to  members  of  Congress  calling 
their  attention  to  the  fact  that  his  proposal  was  more  favor- 
able, and  urging  Congress  not  to  approve  the  proposal  of 
Barclay,  Herring,  Richardson  &  Company. 

The  members  of  Congress  immediately  took  sides  con- 
cerning these  proposals  and  used  the  publications  of  the  day 
to  vilify  the  opposing  faction.  The  Minister  of  Finance,  fear- 
ing that  Staples  was  "competent  to  fascinate  the  members  of 
Congress,"  also  entered  this  factional  fight  by  publishing  a 
letter  attacking  Staples. 

Notwithstanding  the  fact  that  the  contract  of  Barclay, 
Herring,  Richardson  &  Company  was  properly  executed  and 
that  in  accordance  with  its  terms  they  had  advanced  P.  500,000 
to  the  Mexican  Treasury,  the  government  on  one  pretext  or 
another  failed  to  proceed  with  the  matter.  The  government, 
learning  that  the  5%  bonds  of  1823  were  quoted  at  70  on  the 
London  Stock  Exchange,  concluded  that  the  new  6%  bonds 
should  be  worth  between  84  and  851/^. 

After  considerable  discussion  and  numerous  attempts  on 
the  part  of  Barclay,  Herring,  Richardson  &  Company  to  induce 
the  government  to  carry  out  the  provisions  of  the  contract, 
a  modification  thereof  was  signed  on  August  25,  1824,  pro- 
viding for  a  bond  issue  of  £3,200,000  with  interest  at  6%  per 
annum,  to  be  sold  at  the  most  favorable  price,  less  a  commission 
of  6%  on  the  amount  realized.  This  6%  loan  of  1824  was  sold 
at  86%%  and  produced  £1,300,898.03-9  for  the  government, 
after  deducting  interest  received  before  bonds  were  issued  and 
expenses,  etc.,  as  explained  in  detail  in  the  following 
statement : 

14 


6%  LOAN  OF  1824 
STATEMENT 


February  7,  1825, 
sale  of  bonds  at 
86%%    

6%  commission  

Interest  paid  to 
banks  prior  to 
issuance  of 
bonds    

Expenses  of  issue 

Balance 

Totals  

Balance  down  rep- 
resenting net 
proceeds  

Received  from 
Government  re- 
mittance b  y 
frigate  Piramus, 
June  26,  1826 

Interest  and  com- 
mission  on 
bonds  issued 

Cost  of  bonds 
amo'-tized    

Amount  trans- 
ferred to  1823 
loan  for  amorti- 
zation purposes 

Amount  trans- 
ferred to  1823 
loan  for  amorti- 
zation   purposes 

Amount  trans- 
ferred to  1823 
loan  for  pay- 
ment of  interest 

Interest  on  ad- 
vances made 
prior  to  loan 

Loaned  to  Colom- 
bia without  au- 
thority    

Loss  through 
bankruptcy  o  f 
Barclay,  H  e  v  - 
ring,  Richard- 
son &  Company 

Balance   

Totals  

Balance  down  rep- 
resenting cash 
actually  re- 
ceived   

Bonds  outstanding 
after  amortiza- 
tion as   above 

Interest  rate  on 
amount  received 


Debit 


Credit 


£    166,560.00 


167,952.00 

1,462.07 

2,440,025.13 


£2,776,000. 


Par  Value 
of  Bonds 


£3,200,000 


2,776,000.00 


122,563.16-  6 
33,001.00 

500,000.00 

111,977.14-  9 

56,518.10-  8 
4,142.  9-  3 
63  000.00 


303,928.16-  1 
1,300,898.  3-  9 


2,496,030.11 


2,776,000.00 


2,440,025.13 


56,004.18 


49,100 


2,496,030.11 


1,300,898.  3-- 9 


14.33% 


3,150,900 


15 


CONSIDERATIONS  REGARDING  THE   LOANS  OF 

1823-1824 

The  amount  of  cash  actually  received  from  these  two  loans, 
and  the  amount  of  bonds  outstanding  after  the  payments 
detailed  in  the  statements  on  pages  13  and  15  are  as  follows: 

Amount  Amount  Annual 

Realized  Outstanding  Interest 

5%  Loan  of  1823 _ £1,139,660.00-0  £2,130,500.00  £106,525.00 

6%  Loan  of  1824 1,300,898.03-9  3,150,900.00  189,054.00 

Total £2,440,558.03-9     £5,281,400.00     £295,579.00 

The  rate  of  interest  paid,  based  on  the  amount  of  cash 
actually  realized  was  12.117c  per  annum. 

No  attempt  has  been  made  to  show  the  theoretical  net 
return  to  the  government.  If  certain  interest  and  amortiza- 
tion charges  had  not  been  paid  from  the  proceeds  of  the  loans, 
which  had  been  retained  by  the  bankers  in  accordance  with 
the  established  usage  of  the  day,  it  is  clear  that  other  funds 
must  have  been  remitted  for  that  purpose. 

The  object  here  is  to  show  what  the  government  actually 
received  and  wiiat  it  parted  with  as  a  consideration  therefor. 

Joaquin  D.  Casasus  in  his  "History  of  the  Debt  Contracted 
in  London"  (published  in  1885),  deducts  the  amount  paid 
from  retained  proceeds  for  amortization  purposes  to  arrive  at 
the  amount  realized  by  the  government,  but  does  not  deduct 
the  amount  of  interest  from  the  same  retained  proceeds, 
although  apparently  the  same  principle  should  apply. 

These  two  loans  with  their  accretions  of  interest  and 
several  conversions  constituted  the  foreign  debt  of  Mexico 
until  1886-1889,  when  they  were  finally  redeemed  with  the 
proceeds  of  a  new  loan  placed  with  Bleichroeder  &  Company, 
of  Berlin. 

Casasus  devotes  a  chapter  to  discussing  whether  these 
loans  were  unduly  usurious,  whether  the  government  could 
have  secured  better  terms,  and  whether  the  subscribers  to 
the  loan  ccu]d  be  held  responsible  for  the  mistakes  made.  He 
points  out  that  the  country  was  completely  bankrupt,  with  all 
the  sources  of  wealth  which  should  contribute  to  the  support 
of  the  nation  ruined  or  impoverished. 

In  addition  to  the  urgent  need  of  funds  as  a  reason  for 
making  the  loans,  he  refers  to  the  teachings  of  a  group  of 
Eighteenth  Century  economists  which  were  accepted  as  scien- 
tific truth  at  that  time,  to  the  effect  that  it  was  not  possible 
to  administer  a  government  without  recourse  to  loans,  that 
such  loans  augmented  the  public  wealth  by  the  amounts 
borrowed,  and  that  they  were  only  loans  from  the  right  hand 
to  the  left. 

In  addition  to  these  teachings  which  influenced  the  opinion 
of  public  men  of  that  time,  it  was  believed  that  if  a  loan  were 

1G 


placed  abroad  each  holder  of  a  bond  would  be  a  friend  of  Mexico 
in  time  of  need,  and  that  if  Spain  should  move  to  reconquer  her 
former  colony,  the  nation  abroad  whose  subjects  held  Mexican 
bonds  would,  as  a  matter  of  self-interest,  help  Mexico. 

Casasus  compares  the  Mexican  loans  with  British,  French 
and  Spanish  loans  made  from  1815  to  1823,  and  states  that  in 
view  of  the  figures  presented,  it  cannot  be  said  that  the  Mexican 
loans  were  usurious. 

He  cites  nine  French  loans  issued  from  May  1815  to  July 
1823  yielding  a  return  of  51.23  for  the  first  to  89.55  for  the 
last,  and  upon  this  fact  bases  his  opinion  that  the  economic 
condition  of  Mexico  in  1823  was  about  the  same  as  that  of 
France  in  1815. 

It  is  of  little  value  now  to  speculate  whether  the  Mexican 
Government,  almost  a  century  ago,  could  have  placed  its  loans 
to  better  advantage,  but  there  appears  to  be  no  good  reason 
why  a  better  rate  could  not  have  been  secured  for  the  first  loan 
at  least. 

The  two  loans  were  practically  negotiated  together,  the 
second  before  the  first  was  closed,  for  the  news  of  the  second 
loan  reaching  London  before  the  first  was  concluded  is  cited  as 
a  reason  for  the  low  rate  of  the  first. 

However,  the  rate  at  which  the  first  loan  was  sold,  50%, 
was  39.55  points  less  than  the  rate  of  the  French  loan  of  the 
same  year.  The  second  loan  sold  at  86.75  with  interest  at  6%. 
Reducing  this  price  to  a  57^  basis,  Casasus  points  out  that  it 
would  have  resulted  in  a  price  of  72.29. 

If  72.29  had  been  secured  in  August,  1824,  the  date  of 
the  second  loan,  it  would  seem  that  a  better  rate  than  50  could 
have  been  secured  for  the  first  loan  in  May,  1824. 

The  payment  of  the  first  few  coupons  and  one  or  two  years' 
amortization  charges  from  retained  proceeds  appear  to  have 
been  the  practice  of  the  day.  The  real  reason  for  this  custom, 
however,  seems  to  have  been  the  lack  of  modern  communica- 
tion facilities. 

The  amount  lost  through  the  bankruptcy  of  Barclay,  Her- 
ring, Richardson  &  Company  was  due  to  carelessness,  as  the 
government  had  received  notice  of  their  financial  condition 
sufficiently  in  advance  of  the  event  to  have  transferred  its 
account  to  other  bankers. 

The  unauthorized  loan  of  the  Mexican  Minister  to  Colombia 
shown  in  the  financial  statement  on  page  15  was  wholly  with- 
out authority  and  made  at  a  time  when  the  government  was 
urgently  in  need  of  funds. 

The  gravest  error  made  by  the  Mexican  Government  was  in 
the  disposition  of  the  proceeds.  A  loan  to  be  used  in  the  pay- 
ment of  the  ordinary  expenses  of  administration  can  only  be 
justified  by  an  increase  in  the  revenues  sufficient  to  provide 
for  interest  and  amortization  charges;  otherwise  the  ordinary 
revenues  of  the  nation  would  be  reduced  by  such  charges.    If 

17 


the  proceeds  of  loans  are  invested  in  such  a  way  as  to  promote 
industry  and  commerce  and  thereby  increase  revenues,  they 
are  fully  justified. 

Caf^asus  states,  however,  that  it  was  impossible  to  increase 
the  revenues  of  that  period  to  take  care  of  the  debt  service, 
nor  were  the  proceeds  used  in  productive  work,  and 
continues: 

"What  these  contracts  demonstrate  is  the  unwise  disposi- 
tion of  the  proceeds  of  the  loans  which  have  been  the  just 
cause  of  their  being  considered  ruinous.  The  government 
always  had,  since  1821,  the  insane  desire  to  possess  ships  of 
war  as  soon  as  the  'Junta  Provisional  Gubernativa'  was 
installed,  and  when  the  Minister  of  Finance  had  not  the  means 
to  pay  the  troops  guarding  the  capitol,  a  commissioner  was 
sent  to  the  United  States  to  purchase  ships  of  war. 

"These  were  the  ideas  of  the  time  and  the  wishes  of  the 
government,  and  in  accordance  therewith,  the  second  loan  was 
made  with  Barclay,  Herring,  Richardson  &  Company  who 
sent  ships  very  costly  and  of  little  use,  military  clothing  not 
servicealDle  because  of  lack  of  suitability  and  bad  condition, 
nautical  and  astronomical  instruments  which  had  to  be  sent 
back  for  repairs,  etc." 

These  useless  expenditures  cost  the  government 
£284,541-16-2. 

NATIONAL  REVENUES 

The  revenues  of  New  Spain  (under  Spanish  rule  up  to  1821) 
decreased  substantially  during  the  years  of  the  revolution 
from  1810  to  1821,  and  were  as  follows: 

Pesos 

1810  9,361,176 

1811  5,005,495 

1812-1816  Average 2,345,239 

These  revenues  were  collected  under  Spanish  laws  and  the 
decrease  was  due  to  the  revolution. 

The  new  government  had  no  more  than  established  itself 
in  office  than  it  began  to  abolish  some  of  the  important  taxefi 
for  the  purpose  of  making  itse"f  popular  with  the  people. 

Casasus  criticizes  this  measure  because  at  that  time  the 
new  government  needed  more  funds  than  ever,  in  spite  of 
which  it  repealed  some  of  the  measures  producing  that 
revenue. 

However,  as  commerce  and  industry  were  totally  ruined  it 
would  have  seemed  the  part  of  wisdom  to  remove  restrictions 
in  order  to  encourage  and  develop  them.  A  reduction  of  taxa- 
tion under  such  circumstances  would  probably  have  resulted 
in  larger  total  returns  after  a  reasonable  time. 

The  revenues  in  1821,  1822  and  1823  were  not  materially 
larger  than  for  several  years  prior  to  that  period.     The  gov- 

18 


ernment  continually  resorted  to  forced  loans,  contributions 
and  other  measures  to  make  up  part  of  its  deficit.  Such  being 
the  condition  of  the  country,  it  seemed  clear  that  it  could  not 
long  pay  debt  charges  amounting  to  at  least  one-half  of  its 
total  annual  revenues.  No  financial  program  was  formulated 
for  the  use  of  the  proceeds  of  the  loan,  which  alone  would  have 
justified  the  government  in  mortgaging  its  future. 

What  could  justify  the  action  of  the  bankers  in  lending 
money  to  a  country  totally  unable  to  pay  interest  on  the 
amounts  borrowed?  Ordinary  investigation  would  have  con- 
vinced them  that  their  clients  very  probably  would  lose  by 
investment  in  Mexican  securities. 

This  was  the  origin  of  the  British  debt  which  caused  such 
great  difl^culty  for  succeeding  administrations  during  60  years 
and  which  today  is  still  in  evidence  as  part  of  the  1899  loan 
of  £22,700,000,  a  debt  that  should  not  have  been  contracted 
by  the  government  nor  granted  by  the  bankers. 

1824  TO  1831 
REORGANIZATION  OF  1831 

Barclay,  Herring,  Richardson  &  Company,  financial  agents 
of  the  government,  failed  in  1826  and  the  government  was, 
therefore,  suddenly  deprived  of  the  means  of  paying  the 
interest  on  its  foreign  debt. 

Some  timie  after  this  event  Baring  Bros.,  of  London,  were 
appointed  the  financial  agents  of  the  government  and  paid 
the  coupons  falling  due  on  October  1,  1826,  and  January  1st, 
April  1st  and  July  1st  of  1827,  with  funds  remitted  by  the 
government,  together  with  advances  made  by  themselves  to 
supply  deficiencies  arising  through  short  remittances  and  loss 
in  exchange.  The  sums  advanced  by  Baring  Bros,  up  to 
July  15,  1827,  amounted  to  £131,154-12-0. 

They  urged  the  government  several  times  to  liquidate  this 
balance,  as  well  as  to  forward  funds  to  pay  future  interest 
charges  so  as  to  save  the  credit  of  the  country. 

The  government  replied  by  each  post  that  it  would  shortly 
send  funds  suflScient  to  pay  the  back  interest  and  to  liquidate 
the  balance  due  the  bankers.  Repeated  failures  on  the  part 
of  the  government  to  comply  with  its  promises  exasperated 
the  bondholders  and  led  them  to  beheve  that  they  were  the 
victims  of  a  swindle. 

On  May  23,  1828,  the  government  issued  a  decree  providing 
that  one-eighth  of  the  receipts  of  the  maritime  custom  houses, 
and  all  of  the  exportation  taxes  on  gold  and  silver  should  be 
used  to  pay  debt  charges,  and  further  providing  by  circular  that 
these  sums  were  to  be  treated  as  the  property  of  the  British 
bondholders  from  the  time  of  collection  and  were  to  be  remit- 
ted direct  to  London.    This  measure  somewhat  reassured  the 

10 


bondholders,   until   the  government  again  failed   to  forward 
funds  in  accordance  with  the  decree. 

In  October  the  government  submitted  a  law  to  Congress 
for  approval,  authorizing  the  capitalization  of  unpaid  interest. 
This  proposal  was  submitted  to  Baring  Bros.,  who  replied  that 
the  government  had  suffered  enough  in  public  opinion  by  the 
solemn  promises  made  by  one  post  and  lightly  broken  by  the 
next,  and  that  if  they  called  a  meeting  of  bondholders  to 
propose  a  plan  of  capitalization  and  to  obtain  their  consent 
thereto,  they  should,  as  men  of  honor  and  truth,  be  able  to 
advise  them  that  future  interest  payments  would  be  met 
promptly. 

"For  my  part,"  said  Mr.  Baring,  "I  have  no  hope  of  this 
on  account  of  the  serious  condition  of  your  government,  as 
well  as  the  measures  you  have  taken  for  that  purpose." 

The  government,  notwithstanding  that  it  agreed  with  these 
views,  insisted  on  submitting  to  the  bondholders  a  proposition 
to  capitalize  unpaid  interest,  which  was  not  accepted,  because 
Baring  Bros,  thought  it  best  not  to  complete  a  transaction 
which  had  little  probability  of  being  carried  out. 

Here  the  matter  rested  until  1830,  when  the  Secretary  of 
Foreign  Relations  of  Mexico  took  the  matter  in  hand  and 
offered  to  put  aside  one-eighth  part  of  the  import  taxes,  and 
asked  that  an  agent  be  appointed  by  the  interested  parties  to 
act  with  the  government  who  would  name  an  agent  in  each 
custom  house  to  whom  the  funds  would  be  given  as  soon  as 
collected. 

In  accordance  with  this  request,  Messrs.  Manning  and 
Marshall  were  selected  by  the  bondholders  to  represent  them, 
appoint  agents,  and  to  prepare  and  submit  a  proposal  to 
the  government  for  the  capitalization  of  unpaid  coupons. 

The  proposal  was  subject  to  the  approval  of  the  committee 
of  bondholders,  if  accepted  by  the  government,  and  provided 
that  interest  due  and  unpaid  up  to  April  1,  18.31,  was  to  be 
capitalized,  that  one-half  of  the  interest  becoming  due  in  the 
future  up  to  April  1,  1836,  would  also  be  capitalized,  and  that 
new  bonds  would  be  issued  on  April  1,  1836,  for  such  interest. 
If  funds  were  available  before-  the  issuance  of  bonds,  the 
government  was  to  pay  off  the  back  interest.  The  interest 
rate  was  unchanged,  but  one-sixth  instead  of  one-eighth  of 
the  revenues  of  the  custom  houses  at  Vera  Cruz  and  Tampico 
were  to  be  set  aside  to  pay  that  portion  of  the  interest  pay- 
able in  cash  under  the  new  agreement. 

This  arrangement  was  approved  by  Congress,  but  the  bond- 
holders when  they  learned  the  provisions  of  the  proposed 
agreement  objected  to  the  provision  postponing  the  issuance 
of  the  bonds  until  1836,  stating  that  since  they  had  agreed 
that  these  bonds  would  not  draw  interest  until  1836,  there 
was  no  reason  why  they  should  not  receive  bonds  in  exchange 
for  unpaid  coupons  up  to  1831.    The  government  agreed  with 

20 


this  view  and  amended  the  previous  law  by  authorizing  the 
issuance  of  the  new  bonds  as  desired  by  the  bondholders  on 
May  20,  1831. 

These  agreements  were  almost  repudiated  by  the  bond- 
holders on  fhe  failure  of  the  government  to  pay  the  one-half 
interest  due  on  July  1,  1831,  because  the  collections  made  by 
the  bondholders  were  not  sufficient  to  pay  the  amount  required. 
Baring  Bros,  came  to  the  rescue  again,  paid  the  balance  and 
secured  an  agreement  that  interest  was  to  be  paid  semi- 
annually instead  of  quarterly. 

The  amount  of  unpaid  interest  capitalized  in  accordance 
with  this  agreement  was  as  follows: 

Loan  of  1823.  October  1,  1827,  to  April  1,  1831 ; £399.468-15-0 

Loan  of  1824,  October  1,  1827,  to  April  1,  1831 708,952-10-0 

Total ~ - £1,108,421-05-0 

CAPITALIZATION 

£399,468-15-0,  representing  62V2%  of  amount  due £639,150-0-0 

£708,952-10-0,  representing  75%  of  amount  due 945,270-0-0 

Total - »....- £1,584,420-0-0 

The  new  bonds  were  to  draw  interest  from  April  1,  1836. 
Old  bonds  were  to  draw  one-half  interest  to  1836,  and  the 
balance  to  be  capitalized. 

The  amount  of  the  debt  after  the  capitalization  of  unpaid 
interest  was  as  follows: 

Loan  of  1823  Loan  of  1824 

Balance  of  original  loan £2,130,500-  0-0         £3,150,900-  0-0 

Unpaid    interest 399,465-15-0  708,952-10-0 

Compensation  for  unpaid  interest 239,681-05-0  236,317-10-0 

Total £2,769,650-  0-0         £4,096,170-  0-0 


1831-1837 
ARRANGEMENT  OF  1837 

After  the  arrangement  of  1831,  the  interest  becoming  due 
on  the  first  of  January  and  July,  1832,  was  paid.  But  there- 
after the  collection  of  customs  dues  under  the  agreement  was 
not  sufficient  to  meet  the  requirements,  and  payments  were 
again  suspended.  The  one-sixth  of  the  revenues  to  be  paid  to 
agents  of  the  bondholders  was  reduced  to  G^/c  by  order  of  the 
Director  of  Revenues  on  February  15,  1832.  Even  the  small 
remittances  under  this  order  ceased  in  1835. 

The  bondholders  repeatedly  protested  and  appealed  to  the 
British  Government  to  secure  for  them  the  revenues  to  which 
they  were  entitled  under  their  agreement  and  of  which  they 
were  deprived  by  the  Mexican  Government. 

21 


As  the  time  was  rapidly  approaching  for  the  issuance  of 
bonds  in  exchange  for  the  provisional  receipts  for  unpaid 
interest  coupons  from  April  1,  1831,  to  April  1,  1836,  the 
government  gave  the  necessary  instructions  to  F.  de  Lizardi  & 
Company,  London,  who  had  been  appointed  financial  agents 
upon  the  resignation  of  Baring  Bros.,  to  proceed  with  the 
matter. 

Early  in  1837,  a  representative  of  Lizardi  &  Company 
arrived  in  Mexico  and  began  working  on  a  plan  to  consolidate 
the  entire  debt. 

On  April  4,  1837,  the  government  passed  a  law  authorizing 
the  Executive  to  proceed  with  the  colonization  of  lands  which 
were  or  should  be  the  property  of  the  nation,  by  selling  or 
leasing  them,  the  proceeds  to  be  used  to  amortize  the  existing 
or  future  national  debt. 

In  accordance  with  this  authorization  the  President  issued 
a  decree  on  April  12,  1837,  creating  a  consolidated  national 
debt  bearing  interest  at  5/r  and  providing  for  the  conversion 
of  outstanding  bonds  and  unpaid  interest  as  follows: 

Five  per  cent,  bonds  of  1823  at  par. 

Six  per  cent,  bonds  of  1824  at  II214. 

Unpaid  interest  at  par. 

The  total  debt  so  created  was  to  be  divided — one-half  in 
5^c  bonds  payable  in  cash  at  maturity  and  bearing  interest 
from  date  of  issue,  and  one-half  in  59r  deferred  bonds  payable 
in  land  included  in  the  Mexican  States  of  Texas,  Chihuahua, 
New  Mexico,  Sonora  and  California,  at  the  rate  of  four  acres 
for  each  pound  sterling,  with  interest  from  October  1,  1847. 

The  government  irrevocably  set  aside  one-sixth  of  the 
total  customs  receipts  of  the  ports  of  Vera  Cruz  and  Santa  Ana 
de  Tamaulipas  (Tampico),  and  further  provided  that  if 
coupons  were  not  paid  within  ten  days  of  due  date,  the  owners 
should  receive  certificates  which  would  be  accepted  in  pay- 
ment of  customs  duties.  As  additional  security  for  the  pay- 
ment of  principal  and  interest,  the  government  in  the  name 
of  the  nation  pledged  100,000,000  acres  of  land  in  the  territory 
mentioned  above. 

This  law,  according  to  a  statement  issued  by  the  Mexican 
Council  of  State,  had  for  its  purpose  three  objects;  to  reduce 
the  debt  of  the  nation  by  one-half;  to  provide  for  the  coloniza- 
tion of  sparsely  populated  states  by  making  their  lands  produc- 
tive; and  to  solve  one  of  the  most  important  political  ques- 
tions of  the  day,  which  was  the  "preservation  of  the  national 
territory  by  interesting  the  British  Government  to  lend  its 
protection  and  assistance  against  the  ambitious  designs  of 
our  neighbors  of  the  North." 

The  bondholders  held  several  meetings  during  which  the 
proposals  of  the  government  were  strenuously  debated, 
resulting  in  a  compromise  to  name  four  persons  to  study  the 
proposal  and  to  report. 


At  the  same  time  the  British  newspapers  called  attention 
to  the  incompatibility  which  existed  between  the  law  of  April 
12,  1837,  and  various  laws  passed  by  the  Texans  or  by  the 
so-called  "Republica  de  Texas,"  advising  bondholders  to  refrain 
from  mixing  in  political  matters  in  Texas  because  Mexico 
could  not  be  considered  to  have  the  right  to  dispose  of  Texas 
lands.  In  addition  to  the  political  question,  a  rumor  was  spread 
that  the  conversion  was  a  preliminary  step  to  beginning  nego- 
tiations for  another  loan  and  thus  "impose  a  second  time 
upon  the  credulous  John  Bull." 

The  opposition  on  the  part  of  the  bondholders  was  so 
strong  that  Lizardi  &  Company  wrote  on  August  15,  1837, 
that  if  the  proposals  were  accepted  it  would  be  with  modifi- 
cations, and  requested  that  they  be  authorized  to  act  in 
the  matter.  On  November  4,  1837,  the  government  granted 
the  authority  asked  for,  reserving  the  right,  however,  to  accept 
or  reject  the  revised  contract. 

In  the  meantime,  on  September  5,  1837,  the  Charge 
d' Affaires  in  London,  on  his  own  initiative,  entered  into  an 
agreement  with  the  bondhoMers  on  behalf  of  the  government 
which  was  substantially  in  accordance  with  the  terms  of  the 
decree  of  April  12,  1837,  except  that  the  goverament  as 
further  security  for  the  loan  pledged  in  addition  25,000,000 
acres  of  land  nearest  the  Atlantic  Ocean  which  were  con- 
sidered more  suitably  located  for  colonization  purposes  than 
the  interior  lands. 

Lizardi  &  Company  forwarded  this  revised  contract  with 
a  statement  showing  the  advantages  which  would  accrue  to 
the  nation  if  it  were  accepted,  but  the  government  declined  to 
ratify  it  on  the  ground  that  it  was  not  in  accordance  with  the 
law.  On  January  30,  1838,  the  Minister  of  Finance  forwarded 
a  message  to  Lizardi  &  Company  to  the  effect  that  the  govern- 
ment did  not  have  authority  to  approve  the  contract,  but  that 
a  nevv^  authorization  had  been  requested  from  Congress  so  that 
the  matter  might  be  closed. 

Some  time  before  this  date  the  bondholders  had  begun 
converting  their  bonds  in  accordance  with  the  agreement 
entered  into,  notwithstanding  the  fact  that  the  specific 
approval  of  Congress  had  not  been  received. 

When  matters  had  arrived  at  this  state  and  bonds  amount- 
ing to  £2,586,900  had  been  issued.  Baring  Bros,  received  a 
letter  from  their  agents  in  Mexico  advising  them  that  the 
agreement  of  September  5,  1837,  was  unlawful,  and  even  if  it 
w^ere  lawful,  the  government  was  unable  to  pay  over  the  one- 
sixth  part  of  the  customs  receipts  to  which  it  had  obligated 
itself.  Further,  that  after  much  vacillation  as  to  what  meas- 
ures to  adopt,  the  government  had  called  an  extraordinary 
meeting  of  the  council  which  rejected  the  contract,  all  of  which 
should  quickly  be  brought  to  the  attention  of  the  bondholders. 
Upon  receipt  of  this   news   there   was   an   extraordinary 


21 


decline  in  the  price  of  the  bonds  on  the  London  Stock 
Exchange,  and  almost  simultaneously  the  Minister  of  Finance 
notified  Baring  Bros,  that  the  Chamber  of  Deputies  had  re- 
ported favorably  on  the  agreement  and  that  the  government 
would  communicate  its  action  as  soon  as  possible,  so  that 
the  conversion  might  be  completed. 

The  Senate  now  took  a  hand  in  the  matter  and  showed  its 
independence  by  rejecting  the  measure.  The  Cabinet,  fearing 
that  the  House  would  I'oin  the  Senate,  sent  word  to  the  bond- 
holders that  the  contract  of  September  5,  1837,  was  disap- 
proved, and  advised  them  at  the  same  time  that  the  sixth  part 
of  the  customs  receipts  could  no  longer  be  remitted. 

Lizardi  &  Company  now  found  themselves  in  a  difficult 
position  and  requested  the  Mexican  Minister  in  London  to 
advise  them  as  to  whether  they  should  suspend  the  conversion 
of  the  debt.  The  minister  replied  that  in  accordance  with  the 
constitution  of  Mexico  a  law,  rejected  by  the  Senate,  must  be 
returned  to  the  House;  that  they  should,  therefore,  not  con- 
sider the  agreement  as  disapproved;  and  that  they  could 
proceed  with  the  conversion.  Reversing  the  usual  rules  of 
interpretation  he  said  that  because  the  agreement  had  not 
been  rejected  by  both  houses,  it  could  be  regarded  as  valid. 

Lizardi  &  Company,  acting  upon  the  authorization  received 
from  the  Mexican  Minister,  continued  the  conversion  of  the 
old  bonds  and  forwarded  a  statement  to  the  Mexican  Govern- 
ment in  w^hich  they  pointed  out  the  serious  difficulties  which 
would  ensue  if  the  contract  were  disapproved,  and  advised 
the  government  that  the  conversion  w^ould  be  continued  until 
further  orders  to  the  contrary. 

The  constant  bickerings  between  the  government  and  its 
bondholders,  its  vacillating  conduct  and  its  failure  to  keep  its 
promises,  almost  destroyed  its  small  remaining  credit  and 
further  tended  to  alienate  British  friendship  at  a  time  when 
it  was  needed  to  prevent  war  with  France  and  to  suspend  the 
blockade  of  Mexican  ports  which  occurred  at  this  time. 

Hubert  Howe  Bancroft  in  his  "History  of  Mexico" 
describes  the  war  as  being  Mexico's  first  brush  with  a  foreign 
power.  It  was  termed  the  Pastry  War  by  the  Mexicans  from 
the  fact  that  the  claims  of  a  French  baker  for  the  loss  of  his 
pastries  were  included  by  French  nationals  among  the  reasons 
for  the  war. 

The  French  fleet  blockaded  Vera  Cruz,  destroyed  the  fort 
and  occupied  the  city.  The  war  began  April  16,  1838,  and 
ended  on  December  9,  1839,  upon  the  signing  of  a  treaty 
between  the  two  countries  whereby  Mexico  agreed  to  pay 
P.  600,000  within  six  months  in  settlement  of  the  French 
claims. 

The  government,  realizing  that  British  assistance  was 
necessary  to  induce  France  to  modify  her  demands  and  raise 
the  blockade,  directed  its  minister  to  reawaken  in  that  nation 

24 


those  feelings  of  sympathy  which  it  had  always  shown  for 
Mexico. 

If  it  had  ratified  the  agreement  for  the  conversion  of  bonds 
and  set  aside  the  one-sixth  part  of  its  customs  revenues  as  the 
property  of  Great  Britain,  it  might  well  have  expected  favor- 
able action  by  having  the  bondholders  present  their  claims 
to  the  British  Government.  Under  the  circumstances  it  was 
dangerous  to  call  a  meeting  of  the  bondholders  because  failure 
to  pay  their  share  of  the  customs  receipts  was  not  due  to  the 
blockade,  but  to  the  action  of  the  Mexican  Government. 

However,  on  June  30th  a  representation  was  made  to  Lord 
Palmerston  by  the  bondholders  that  the  blockade  of  Mexican 
ports  by  the  French  deprived  the  British  of  the  one-sixth  part 
of  the  customs  duties  to  which  they  were  entitled,  and  that  in 
consequence  the  British  Government,  which  always  looked 
after  the  interests  of  her  subjects,  should  take  part  in  the 
French-Mexican  embroglio  to  terminate  the  conflict  and  reopen 
the  ports  to  the  commerce  of  all  nations. 

This  action  of  the  bondholders  in  conjunction  with  the 
debate  in  the  House  of  Lords  on  August  14,  1838,  in  which 
Great  Britain  decided  to  lend  her  moral  support  to  the  Mexican 
cause  and  affirmed  her  belief  in  the  legality  of  the  agreement 
of  1837,  induced  the  Mexican  Government  to  take  steps  to 
secure  the  ratification  of  the  agreement. 

On  December  18,  1838,  the  President  sent  a  message  to 
Congress  explaining  why  the  government  considered  it  desir- 
able to  approve  the  agreement,  but  it  was  not  until  June  1, 
1839,  that  Congress  approved  the  agreement  of  September  5, 
1837. 

The  essential  facts  concerning  the  consolidation  and  con- 
version of  the  1823  and  1824  loans  are  shown  below: 

5%  Loan  of  1823  6%  Loan  of  1824 

Bonds  outstanding  after  capitalization 

of  interest  in  1831 £2,769,650-  0-0  £4,096,170-  0-0 

Unpaid  interest  to  Oct.  1,  1837 673,770-12-6  1,195,766-11-0 

Exchange   of   6%   Bonds  for  new   5% 

issue..- - 512,021-05-0 

Total  Debt,  Oct.  1,  1837 £3,443,420-12-6         £5,803,957-16-0 

TOTAL  AMOUNT  OF  INDEBTEDNESS   AS  PER  AGREEMENT 

1823  Loan -.... ^ £3,443,420-12-6 

1824  Loan - - 5,803,957-16-0 

Total - £9,247,378-08-6 

LIQUIDATED  AS  FOLLOWS 
In  5%  bonds  payable  in  cash  Avith  interest  from  Oct,  1, 

1837  - - - -•  £4,623,689-04-3 

In  5%  bonds  payable  in  lands  with  interest  from  Oct.  1, 

1847 _ 4,623,689-04-3 

Total - ~ £9,247,378-08-6 

25 


1837-184.3 
SETTLEMENT  OF  1843 

The  conversion  of  the  debt  as  of  October  1,  1837,  was  not 
completed  before  new  differences  arose  over  the  non-payment 
of  interest  from  that  date  to  October  1,  1839,  which  non-pay- 
ment, it  was  now  claimed,  was  due  to  the  delay  of  Congress  in 
ratifying  the  conversion  agreement. 

In  accordance  with  the  provisions  of  the  agreement,  if 
coupons  were  not  paid,  Lizardi  &  Company  were  required  to 
issue  custom  house  certificates  to  bondholders.  As  soon  as 
Congress  ratified  the  agreement,  bondholders  demanded  and 
received  certificates  for  back  interest  up  to  1839. 

This  issue  of  custom  house  certificates  was  more  than 
the  one-sixth  part  of  the  customs  duties  provided  for  in  the 
agreement,  so  that  no  cash  was  available  to  pay  the  coupons 
due  April  1,  1840.  On  account  of  the  excess  issue  bondholders 
receiving  the  certificates  had  to  accept  a  loss  of  as  much  as 
50*;^  of  their  par  va'ue.  Outstanding  certificates  constituted 
an  additional  debt  which  amounted  to   e  189,702-12-10. 

The  bondholders  seem  to  have  been  the  first  to  see  the 
folly  of  issuing  an  excess  of  custom  house  certificates,  and  on 
April  14,  1840,  requested  the  bankers  to  capitalize  four  interest 
coupons.  The  bankers  amended  the  proposal  by  providing 
that  one-half  of  the  coupons  be  made  payable  in  active  and 
the  balance  in  deferred  bonds. 

The  government  agreed,  but  while  the  matter  was  pending 
in  Congress  the  bondholders  requested  that  the  amount  to  be 
set  aside  in  the  custom  houses  of  Vera  Cruz  and  Tampico 
for  the  payment  of  interest  be  increased  from  one-sixth  to 
one-fifth.  Congress  thereupon  passed  a  law  providing  for  the 
payment  of  20Sv  of  the  customs  duties  received  at  the  above 
ports,  and  premised  a 'rain  that  in  the  future  remittances 
would  be  made  punctually. 

Upon  the  passage  of  the  law,  the  government  considered 
it  would  be  an  opportune  time  to  try  to  secure  a  reduction  of 
the  amount  of  interest  due.  On  August  14,  1840,  a  confidential 
note  Vv-as  sent  to  Lizardi  &  Company  requesting  them  not  to 
convey  the  information  regarding  the  new  law  to  the  bond- 
holders, and  urging  the  bankers  to  use  all  their  ability  and 
dexterity  to  secure  a  reduction  of  the  amount  of  interest  due, 
and  to  let  the  bondholders  know  that  the  government  intended 
to  make  a  sacrifice  in  their  favor  by  increasing  the  proportion 
of  the  customs  duties. 

The  psychology  of  the  plan  seems  to  have  been  wholly 
wrong,  as  indicated  in  a  letter  from  Lizardi  &  Company  asking 
how  the  matter  could  be  arranged  secretly  without  announcing 
the  conditions  which  would  induce  those  interested  to  agree  to 
a  reduction. 

26 


At  the  same  time  the  government's  plans  for  secrecy  were 
upset  through  Messrs.  Manning  and  Marshall,  agents  of  the 
bondholders'  committee  in  Mexico,  who  forwarded  to  their 
employers  the  text  of  the  law  as  soon  as  passed. 

The  agents  of  the  government,  in  accordance  with  instruc- 
tions, began  negotiations  with  the  bondholders  with  a  view 
■  to  securing  a  reduction  of  the  amount  of  interest  due.  Some 
of  the  bondholders  had  been  paid  in  certificates,  some  had 
received  payment  for  several  coupons,  and  others  for  only  one, 
so  that  a  satisfactory  adjustment  was  diflScult. 

However,  on  February  11,  1842,  after  prolonged  discussion, 
an  agreement  was  signed  between  representatives  of  the  bond- 
holders' committee  and  Lizardi  &  Company,  agents  of  the 
government,  providing  in  the  most  binding  way  for  the  pay- 
ment of  one-fifth  of  the  customs  receipts,  instead  of  the  one- 
sixth  previously  agreed  upon.  The  bondholders  agreed  to 
accept  50%  of  the  first  eight  interest  coupons  in  new  obliga- 
tions of  the  government. 

Bondholders  who  had  received  payment  of  their  coupons 
in  cash  or  custom  house  certificates,  were  to  forego  an  equal 
number  of  coupons  so  that  the  adjustment  would  be  equal. 

Lizardi  &  Company  published  this  contract  and  announced 
that  they  wouM  pay  the  coupons  due  April  1,  1842,  They  also 
wrote  to  the  government  recommending  immediate  approval 
of  the  contract  and  asking  that  measures  be  taken  to  put  into 
effect  the  provision  of  law  regarding  increased  customs  duties. 

President  Santa  Ana  submitted  the  matter  to  the  Cabinet, 
which  held  that  the  government  was  not  authorized  to  enter 
into  such  a  contract  because  the  preceding  administration  had 
not  published  the  law  providing  for  the  increase  in  the  pro- 
portion of  the  customs  dues  to  be  set  aside.  It  was  conceded 
that  although  the  law  was  defective,  it  would  be  submitted  to 
the  first  constitutional  congress  to  determine  whether  the 
contract  was  in  accordance  with  instructions. 

The  minutes  of  the  Cabinet  meeting  are  somewhat  incoher- 
ent and  it  is  difficult  to  extract  the  meaning,  except  that  the 
Santa  Ana  Government  repudiated  the  action  of  the  Busta- 
mante  Government,  and  sought  to  justify  their  position  by 
the  flimsy  excuse  of  non-publication. 

Casasus  states  that  this  act  created  such  a  disagreeable 
impression  upon  the  minds  of  Lizardi  &  Company  that  they 
did  not  have  the  courage  to  convey  the  news  to  the  bond- 
holders, convinced  as  they  were  that  the  conduct  of  the  gov- 
ernment would  be  acrimoniously  assailed  by  the  public  press 
and  completely  discredit  the  administration. 

What  was  to  be  done  about  the  payment  of  the  October 
coupons  which  Lizardi  &  Company  had  contracted  to  pay? 
If  they  should  decline,  they  would  have  to  explain  that  it  was 
in  accordance  with  the  orders  of  the  government,  which  would 
give  publicity  to  the  facts  which  they  were  withholding,  and 
not  only  discredit  the  government,  but  themselves. 


They  had  paid  the  April  coupons  in  accordance  with  the 
provision  of  the  contract,  but  with  the  contract  repudiated, 
was  this  payment  legal?  How  were  the  preceding-  coupons  to 
be  settled? 

In  this  dilemma,  Lizardi  &  Company  could  do  nothing  but 
announce  the  payment  of  the  next  coupon  and  await  the  "good 
or  bad  results  which  might  occur." 

The  British  Government  now  took  the  matter  in  hand  to 
induce  the  Mexican  Government  to  determine  definitely 
whether  or  not  it  would  ratify  the  contract  of  February  11, 
1842,  in  order  to  stop  the  doubts  and  uncertainty  which  pre- 
vailed regarding  this  important  matter. 

The  government  on  October  10,  1842,  issued  a  decree 
accepting  the  contract  of  February  11,  1842,  in  view  of  the 
benefit  it  conferred  upon  the  nation,  "although  the  law  under 
authority  of  which  the  contract  was  drawn,  was  illegal." 

The  total  interest  accrued  during  the  period  from  April  1, 
1838,  to  October  1,  1841,  amounted  to  £924,737-16-8.  Under 
the  agreement  one-half  of  this  sum,  £462,368-18-4,  was  to  be 
paid  in  new  deferred  bonds.  This  did  not  liquidate  all  the 
interest  due  as  shown  by  the  following  summary : 

Total  interest  accrued £924,737-16-8 

Paid  in  deferred  bonds 462,368-18-4 

Balance £462,368-18-4 

Paid    in    cash    or    custom    house 

certificates   £316,615-10-6 

Balance  of  interest  not  paid £145,753-07-10 

As  a  matter  of  fact,  Lizardi  &  Company  issued  £499,096 
in  bonds  instead  of  th?  amount  authorized.  The  settlement  of 
the  cash  balance  was  lost  sight  of  in  the  confusion  which 
almost  immediately  occurred  when  it  was  discovered  that  the 
bankers  had  exceeded  the  bond  authorization. 

The  decree  of  October  10,  1842,  which  the  government 
believed  would  re-establish  the  credit  of  the  nation  by  providing 
for  the  future  regular  payment  of  interest,  was  no  more  than 
published  when  trouble  arose  from  a  new  source. 

The  London  Stock  Exchange  became  cognizant  of  the  fact 
that  more  bonds  had  been  issued  by  the  bankers  than  was 
authorized  by  the  law^  of  1837,  and  addressed  an  inquiry  to 
Lizardi  &  Company  as  to  the  amount  of  bonds  issued  and  their 
serial  letter  and  number. 

Lizardi  &  Company  replied  that  they  were  surprised  to 
receive  such  a  communication,  which  never  before  had  been 
received  by  the  agents  of  a  foreign  country,  and  that  they 
must  decline  to  give  the  information  requested,  and,  further, 
that  they  had  at  all  times  acted  with  the  committee  of  bond- 
holders. The  Exchange  was  not  satisfied  with  this  statement 
and  forwarded  Lizardi  &  Company's  letter  to  the  committee, 
together  with  a  copy  of  their  inquiry. 

28 


The  bondholders  called  a  meeting  to  consider  the  matter, 
during  which  they  were  advised  by  Lizardi  &  Company  that 
the  Mexican  Minister  had  signed  bonds  amounting  to 
£11,000,000;  one-half  in  5%  active  bonds  and  one-half  in 
deferred  5%  bonds,  and  that  "while  not  all  of  these  bonds  had 
been  put  into  circulation,  the  total  issue  after  the  conversion 
could  not  exceed  that  amount." 

The  committee  replied  by  quoting  the  original  law  which 
limited  the  total  issue  to  £9,247,937  and  supposed  that  this 
amount  had  not  been,  nor  would  be,  exceeded. 

Lizardi  &  Company  replied  that,  having  reported  the 
amount  of  bonds  placed  in  their  hands  by  the  Mexican  Min- 
ister, they  only  could  add  that  as  soon  as  the  conversion  was 
concluded,  they  would  report  to  the  Mexican  Government. 
They  took  the  liberty  of  noting,  however,  that  the  statement 
submitted  by  the  committee  was  in  error,  since  the  bonds 
which  represented  the  commission  for  their  service  were  not 
included.  Having  satisfied  their  amour  propre  and  defined 
their  status  to  oblige  the  committee  they  then  advised  that 
5%  active  bonds  to  the  amount  of  £5,254,500  had  been  issued 
and  were  in  circulation. 

The  Stock  Exchange  next  wanted  to  know  how  many 
deferred  bonds  had  been  issued,  and  Lizardi  &  Company  stated 
that  this  issue  was  limited  to  £4,615,600  in  accordance  with 
the  law. 

This  excess  issue  of  bonds  was  the  cause  of  claims  and 
counter-claims  and  serious  disputes  for  years.  The  claim  of 
Lizardi  &  Company,  for  payment  of  a  balance  due  them  was 
not  settled  until  1867,  when  final  liquidation  was  made  by 
Emperor  Maximilian. 

This  unauthorized  issue  of  bonds  appears  to  have  been  the 
result  of  a  determination  on  the  part  of  the  bankers  to  collect 
their  compensation  for  services  rendered  in  the  conversion  of 
1837,  as  well  as  in  the  capitalization  of  one-half  of  the  interest 
accruing  from  1838  to  1841. 

In  addition  to  the  £5,254,500  bonds  which  Lizardi  &  Com- 
pany admitted  issuing,  it  appears  that  they  subsequently 
issued  the  balance  of  £245,500,  since  the  total  amount  of 
£5,500,000  was  later  recognized  by  the  government. 

Amount  issued  £5,500,000-0-0 

Amount  authorized    (5%   active 

bonds)    „ 4,624,000-0-0 

Excess £876,000-0-0 

Mexican  bonds  (active)  at  this  time  were  selling  between 
20  and  25%  of  their  par  value  so  that  the  sum  realized  was 
between  £175,200  and  £219,000,  which  latter  amount  is 
slightly  less  than  their  commission  of  2i/^%  of  the  amount 
involved  in  the  conversion  of  1837. 

29 


Compensation  to  the  financial  agents  for  their  services 
was  first  fixed  by  the  law  of  April  12,  1837,  which  allowed  them 
to  add  6'/f  to  the  par  value  of  customs  certificates  issued  and 
to  collect  twelve  "reales"  or  pesos  1.50  for  each  one  hundred 
acres  of  land  exchanged  for  deferred  bonds,  of  which  three 
"reales"  were  to  be  turned  over  to  the  Mexican  Minister  as 
compensation  for  his  work. 

Shortly  after  this  law  was  published,  Lizardi  &  Company 
requested  that  they  be  allowed  a  commission  of  6'/  on  the 
total  amount  involved  in  the  conversion,  to  be  paid  equally  in 
active  and  deferred  bonds. 

The  Minister  of  Finance  replied  that  the  commission 
requested  did  not  seem  exorbitant,  since  it  was  to  be  paid 
in  bonds  which  were  selling  at  from  20  to  25^;  of  their  par 
value  which  would  reduce  the  commission  to  between  I14 
to  IV-y'^'c.  On  this  basis  the  commission  asked  for  was  mod- 
erate and  in  consequence  the  President  thought  it  should  be 
approved. 

Lizardi  &  Company's  agent,  after  securing  this  communi- 
cation, left  Mexico  for  London,  presumably  to  transmit  this 
information  to  his  employers. 

After  his  departure  the  Council  of  State  announced  that, 
in  view  of  the  compensation  already  provided  by  law,  it  would 
be  just  and  equitable  to  allow  a  commission  of  2^/>  payable  in 
land  at  the  rate  of  P.  1.25  per  acre,  or  if  the  bankers  pre- 
ferred, l^f  payable  in  cash,  when  the  financial  condition  of 
the  country  permitted.  This  decision  was  communicated  to 
Lizardi  &  Company,  who  now  requested  that  their  commission 
be  fixed  at  21/2'/^,  payable  in  cash. 

As  the  agreement  of  1837  was  at  this  time  still  in  the  con- 
dition of  having  been  rejected,  the  Council  of  State  replied 
that  because  of  this  fact  there  would  be  no  conversion,  and, 
therefore,  no  commission. 

Upon  approval  of  the  agreement  of  June  1,  1839,  the  gov- 
ernment issued  instructions  for  the  conversion,  and  confined 
itself  to  requiring  that  a  detailed  statement  be  kept  of 
expenses  incurred  by  the  bankers,  without,  however,  indi- 
cating how  they  were  to  be  paid.  In  fact,  it  stipulated  that 
not  a  single  new  bond  was  to  be  issued,  except  in  exchange  for 
an  old  one,  thus  tacitly  prohibiting  the  issue  of  bonds  in  pay- 
ment of  commissions.  The  question  of  commissions  appar- 
ently did  not  come  up  again  until  the  London  Stock  Exchange 
began  its  investigation  in  1842. 

After  the  bonds  were  issued,  the  government  was  obligad 
to  back  them  since  Lizardi  &  Company  were  its  agents.  This 
it  did  in  two  orders  issued  on  October  10,  1842,  the  first  fixing 
the  commission  for  the  conversion  of  1837  at  21/2/^  payable 
equally  in  active  and  deferred  bonds,  and  5%  of  the  capitali- 
zation of  interest  payments  in  1842,  payable  preferably  from 
the  proceeds  of  the  additional  31/2%  customs  duties,  or  in 
bonds. 

30 


These  orders  did  not  wholly  clear  up  the  matter,  since 
Lizardi  &  Company  had  issued  active  bonds  only,  instead  of 
dividing  the  issue. 

In  addition  to  these  bonds,  Lizardi  &  Company  had  also 
issued  bonds  amounting  to  £91,650  in  part  payment  of  the 
interest  coupons  which  became  due  on  April  1,  1843. 

On  July  29,  1843,  President  Santa  Ana  authorized  Lizardi 
&  Company  to  issue  an  additional  £200,000  of  bonds  for  ths 
payment  of  interest  on  bonds  issued  or  to  be  issued  by  them, 
and  for  the  payment  of  the  5^(  commission  allowed  them  bv 
order  of  October  10,  1842. 

•  These  various  issues  of  bonds  were  confusing,  and  the 
disputes  as  to  the  legality  of  some  of  them  convinced  the 
government  of  the  necessity  of  determining  the  total  amount 
of  the  British  debt. 

Accordingly,  on  December  15,  1843,  a  law  was  passed 
specifying  and  recognizing  the  British  debt  to  be  as  follows: 

5%  active  bonds i5,500,000 

57o  interest  bearing  deferred  bonds 91,650 

Deferred  bonds  - 4,624,000 

Debentures  issued  for  unpaid  interest _ 499,096 

5%    bonds    in    payment    of    commission    for    capitalizing 

interest   - 200,000 

Total  £10,914,746-0-0 

This  did  not,  however,  conclude  the  matter,  since  the 
Mexican  charge  d'affaires  in  London  declined  to  sign  the 
£200,000  of  bonds.  The  government  then  issued  specific 
orders  to  him  to  countersign  the  bonds,  but  again  he  did  not 
comply. 

The  many  disputes  with  Lizardi  &  Company  over  the  pay- 
ment of  interest,  issue  of  bonds,  etc.,  induced  the  government 
to  change  agents,  and  accordingly  John  Schneider  &  Company, 
of  London,  were  appointed  on  April  5,  1845. 

1843-1846 
CONVERSION  OF  1846 

Why  was  another  conversion  of  the  British  debt  necessary 
so  soon  after  the  passage  of  the  law  of  December  15,  1843? 
The  law  authorizing  the  new  conversion  was  passed  April  28, 
1845,  yet  the  April  and  October,  1844,  interest  coupons  appear 
to  have  been  paid.  Montellano  indicates  in  one  part  of  his 
book  that  these  were  not,  and  in  another  that  they  were,  paid. 
Since  these  two  coupons  do  not  appear  to  have  been  the  subject 
of  negotiations,  it  is  probable  that  they  were  paid,  and  it  is  so 
considered. 

The  coupon  of  April  1,  1845,  then,  was  the  only  one  in 
default  when  the  new  law  was  passed.  It  is  probable  that  the 
change  in  administration  and  the  desire  to  establish  a  reputa- 
tion for  financial  ability,  were  the  leading  causes  for  the 
conversion. 

31 


The  new  law  was  short,  definite,  and  provided  for  the  con- 
solidation of  the  debt,  on  the  following  basis: 

1.  Unpaid  interest  shall  not  be  capitalized. 

2.  Interest  shall  not  exceed  57^  per  annum. 

3.  The  legal  debt  as  it  now  stands  shall  not  be 

increased. 

4.  No  property  of  the  nation  shall  be  given  in 

payment,  nor  shall  any  part  of  the  national 
territory  be  mortgaged. 
Manning  and  Mackintosh,  who  now  represented  the  bond- 
holders' committee,  on  April  29,  1845,  made  a  proposal  for 
a  new  loan  of   £4,000,000  bearing  interest  at  57' ,  payable  in 
eighty  years,  with  pledge  of  all  revenues  of  the  Republic  and 
especially  those  from  tolDacco.    The  proceeds  of  the  loan  were 
to  be  used  to  retire  all  deferred  bonds  and  outstanding  deben- 
tures, and  to  pay  the  three  coupons  in  default.     The  balance 
was  to  be  liquidated  as  follows : 
Pesos 
1,500,000  In  tobacco  bonds. 

500,000  In  so-called  26^?   bonds. 
2,500,000  In  interest  bearing  obligations. 

500,000  In  non-interest  bearing  obligations. 
1,600,000  In  cash. 


6,600,000 

The  proposal  was  approved  by  the  government  as  soon  as 
presented,  and  instructions  were  sent  to  Schneider  &  Com- 
pany to  proceed  to  secure  the  deferred  bonds  and  debentures, 
in  accordance  with  the  contract. 

Schneider  &  Company  immediately  stated  that  the  scheme 
was  impractical  and  recommended  a  change  in  the  proposal. 
As  the  holders  of  the  deferred  bonds  and  debentures  would 
receive  a  greatly  reduced  price  for  their  securities  without 
gaining  anything,  since  the  securities  in  question,  in  accord- 
ance with  the  agreement  of  1837,  would  begin  to  draw  interest 
in  1847,  the  bondholders  would  not  agree  to  the  new  proposal. 

By  reason  of  the  difficulties  encountered  in  the  carrying 
out  of  their  proposal,  Manning  &  Mackintosh,  on  September 
20,  1845,  withdrew  their  offer,  asking  at  the  same  time  for 
the  return  of  P.  500,000  which  they  had  advanced  to  the 
government. 

The  government  now  offered  on  September  29,  1845,  a  new 
agreement  which  was  substantially  the  same  as  the  foregoing, 
except  that  the  amount  was  raised  to   £4,200,000. 

This  proposal  was  likewise  declined  by  the  bankers,  who 
again  asked  for  the  return  of  the  P.  500,000  advanced,  stating, 
however,  that  they  would  offer  some  modification  which  would 
enable  them  to  enter  into  a  contract. 

On  March  5,  1846,  a  new  Minister  of  Finance  raised  the 
amount    of  the    loan    to     £4,650,000    with    other   conditions 

32 


unchanged.  This  proposal  was  accepted  by  Manning  &  Mack- 
intosh and  the  government  on  the  above  date,  and  communi- 
cated to  the  agents  of  the  government  in  London  with  an 
additional  statement  addressed  to  the  Mexican  Minister 
authorizing  him  to  solve  any  difficulties  presented  in  the 
conversion  of  the  debt,  in  accordance  with  the  contract. 

The  project  was  submitted  to  the  bondholders  on  May  9, 
1846,  and  rejected,  mainly  because  it  was  not  considered  fair 
to  the  holders  of  the  deferred  bonds  and  debentures.  They  felt 
that  the  reduction  in  the  debt  should  be  distributed  equally 
among  all  bondholders. 

As  the  Mexican  Minister  believed  he  possessed  full  authority 
to  conclude  a  satisfactory  agreement,  he  then  proposed  on 
June  1,  1846,  the  creation  of  a  new  5%>  bond  issue,  which  was 
to  be  used  as  follows: 

Par  Proceeds 

£5,591,650  Active  Bonds  at  90% _ £5,032,475 

4,624,000  Deferred  Bonds  at  60% 2,774,400 

499,096  Debenture   at  60% 299,457 

489,269  Interest   in    Default 

£11,204,015  Total ~ £8,106,332 

Old  Debt  „ £11,204,015 

As  Converted  „ 8,106,332 

Reduction £3,097,683 

The  total  amount  of  the  new  loan  was  fixed  at  £10,241,650, 
the  difference  of  £2,135,318  being  issued  to  Manning  &  Mack- 
intosh to  provide  cash  for  the  use  of  the  government  and  to 
retire  domestic  obligations. 

This  proposal  was  embodied  in  a  contract  and  signed  by  the 
Mexican  Minister,  Sr.  Murphy,  and  by  the  duly  qualified  repre- 
sentative of  the  bondholders. 

There  were  now  two  contracts  outstanding  providing  for 
the  conversion  of  the  debt,  one  dated  March  5,  1846,  between 
the  Minister  of  Finance  and  Messrs.  Manning  &  Mackintosh  for 
a  bond  issue  of  £4,650,000,  and  the  other  dated  June  4,  1846, 
between  the  Mexican  Minister  in  London  and  the  bondholders' 
committee. 

Shortly  after  the  date  of  this  last  agreement,  a  revolution 
caused  a  change  in  administration,  and  the  nev/  Minister 
of  Finance,  Sr.  Farias,  on  August  28,  1846,  repudiated  the  con- 
tract executed  in  London,  removed  Sr.  Murphy  from  office, 
transferred  the  agency  from  Schneider  &  Company  to  Manuel 
J.  de  Lizardi,  and  advertised  that  the  Mexican  Government 
proposed  to  effect  a  new  settlement  of  its  foreign  debt. 

Then  followed  another  secretary  and  another  decision.  This 
new  secretary,  Sr.  Haro  y  Tamariz,  who  succeeded  Sr.  Farias, 
approved  the  contract  on  October  29,  1846,  and  ordered  a  copy 
to  be  furnished  to  M.  J.  de  Lizardi. 

33 


still  another  secretary,  Sr.  Villamil,  followetl  shortly,  who 
disapproved  the  contract  in  effect  by  disapproving  the 
approval  of  October  29th. 

Casasus  says  that  ''these  three  contradictory  orders  which 
were  successively  received  in  London,  during  the  months  of 
September,  November  and  December,  1846,  signed  by  three 
different  Ministers  of  Finance,  produced  an  inconceivable  but 
justifiable  scandal." 

The  bondholders  now  submitted  the  matter  to  the  British 
crow^n  attorneys  who  held  that  a  most  important  contract  had 
been  entered  into  between  an  independent  State  on  one  part 
and  certain  public  creditors,  subjects  of  a  foreign  country,  on 
the  other;  that  the  contract  had  been  fully  ratified  without  a 
single  condition  by  the  State  that  had  promoted  and  authorized 
the  negotiations ;  that  in  accordance  with  the  laws  of  man, 
neither  of  the  contracting  parties  could  withdraw  from  the 
agreement  without  the  consent  of  the  other,  that  no  subse- 
quent change  in  the  interior  government  of  the  State  that  had 
entered  into  the  contract,  nor  the  opinion  of  its  officials  could 
give  it  the  right  to  break  the  solemnly  pledged  word,  which, 
if  done,  would  constitute  a  flagrant  breach  of  the  most  sacred 
and  best  established  principles  of  international  law. 

The  bondholders  likewise  held  a  general  meeting  and  passed 
a  set  of  resolutions  upholding  the  actions  of  the  Mexican  Min- 
ister in  London,  Sr.  Murphy,  in  entering  into  the  agreement  of 
June  4,  1846. 

The  war  with  the  United  States  of  America,  which  soon 
followed,  prevented  Congress  from  passing  on  the  matter, 
and  Santa  Ana,  again  President,  on  July  27,  1847,  issued  a 
decree  approving  the  contract  which  had  been  so  long  in 
dispute. 

His  approval  was  conditioned  upon  the  consent  of  Messrs. 
Manning  &  Mackintosh,  which  appears  to  have  been  given  on 
July  19,  1847.  It  likewise  appears  that  these  gentlemen  took 
advantage  of  this  opportunity  to  impose  new  conditions  to 
their  own  profit. 

The  new  debt  amounted  to  £10,241,650  bearing  interest 
from  July  1,  1846,  and  was  to  be  amortized  each  year  by  the 
purchase  of  bonds  in  the  open  market  to  the  extent  of  $500,000. 
Th3  principal  and  interest  was  to  be  secured  by  a  general 
pledge  of  all  the  revenues  of  the  government. 

1846-1850. 

CONVERSION  OF  1850. 

The  war  between  Mexico  and  the  United  States  was  now 
over,  but  the  after-effects  in  Mexico  were  such  as  to  make  it 
impossible  to  pay  interest  and  amortization  charges  on  its 
foreign  debt. 

34 


The  larger  portion  of  the  lands  of  Texas,  Chihuahua,  New 
Mexico,  Sonora  and  California,  formerly  pledged  as  security 
for  the  payment  of  part  of  its  foreign  debt,  now  belonged  to 
the  United  States,  which  paid  Mexico  $15,000,000  (then  equal 
to  P15,000,000)  as  indemnity  under  the  treaty  of  peace. 

After  the  treaty  of  peace  was  signed,  Mr.  George  B.  Robin- 
son, Chairman  of  the  Bondholders'  Committee,  directed  their 
agents  in  Mexico,  Messrs.  Manning  &  Mackintosh,  to  request 
the  government  to  set  aside  for  the  bondholders  207f  of  the 
receipts  of  the  custom  houses  at  Vera  Cruz  and  Tampico, 
and  the  receipts  from  tobacco,  and  to  secure  payment  of  the 
three  coupons  then  in  default  with  a  part  of  the  proceeds  of  the 
American  indemnity.  They  held  that  since  a  portion  of  the 
territory  ceded  to  the  United  States  had  formerly  been  pledged 
to  the  bondholders,  the  government  could  do  no  less  than  dis- 
tribute part  of  this  indeirnity. 

The  Minister  of  Finance  replied  that  orders  had  already 
besn  given  respecting  the  separation  of  revenues,  but  that  with 
regard  to  the  American  indemnity,  the  decree  of  June  16th 
prohibited  the  use  of  any  part  of  the  P15,000,000  without 
special  authorization  of  Congress. 

At  the  same  time  that  this  decision  was  made,  the  Mexican 
Minister  in  London  addressed  all  the  Consuls  and  Legations 
in  Europe  and  stated  that  the  Mexican  Government  would  not 
and  could  not  devote  any  part  of  the  American  indemnity  to 
its  British  creditors,  because  it  had  in  1846  voluntarily 
renounced  the  pledge  of  the  lands  which  had  been  transferred 
to  the  United  States  Government. 

The  bondholders,  as  a  result  of  the  above  action,  again 
consulted  the  crown  attorneys  with  a  view  to  ascertaining  what 
their  rights  were  under  the  mortgage  of  1837. 

The  attorneys  handed  down  an  opinion  to  the  effect  that 
the  conversion  of  1846  had  not  destroyed  the  rights  of  the 
bondholders  under  the  mortgage  of  1837,  and  that  conse- 
quently they  should  participate  proportionally  in  the 
indemnity. 

It  is  difficult  indeed  to  see  how  this  opinion  is  justified  by 
the  facts.  The  law  of  April  25,  1845,  previously  cited,  pro- 
vided specifically  that  no  part  of  the  territory  of  the  Republic 
should  be  mortgaged.  The  conversion  of  1846  was  based  upon 
this  law,  and  since  the  bondholders  accepted  the  conversion 
which  eliminated  the  objectionable  mortgage,  they  clearly 
waived  their  rights  thereunder.  The  conversion  was  also  made 
in  consideration  of  increased  payments  and  increased  guar- 
antees. 

The  bondholders,  acting  on  the  very  favorable  opinion  of 
the  British  crown  attorneys,  held  a  general  meeting  on  Sep- 
tember 6,  1848,  and  resolved  to  send  Mr.  William  P.  Robertson 
to  Mexico,  to  enter  into  an  agreement  with  the  government 
upon  the  grant  of  a  portion  of  the  indemnity. 


Robertson  arrived  in  March,  1849,  and  began  negotiations 
with  Secretary  Pena  y  Cuevas,  who  conditioned  the  settlement 
of  the  debt  upon  the  establishment  of  a  National  Bank. 

Sr.  Arrangoiz,  who  succeeded  Sr.  Pena  y  Cuevas  within 
a  short  time,  advocated  a  purchase  of  bonds  in  the  open  market 
with  the  proceeds  of  the  indemnity,  a  reduction  of  the  interest 
rate  to  3V2/'f  >  and  a  reduction  of  the  amount  of  interest  in 
default. 

Continuous  discussion  led  to  an  agreement  being  signed 
by  Mr.  Robertson  and  the  Minister  of  Finance.  Since  it  was 
not  approved  by  Congress  and  not  carried  out,  the  details  are 
not  important.  Robertson  returned  to  London  in  October, 
1849,  and  reported  to  the  bondholders,  who  decided  to  defer 
the  approval  of  the  contract  entered  into  by  him  until  it 
was  ratified  by  Congress. 

In  view  of  the  opposition  to  this  proposal  by  a  number 
of  bondholders,  a  new  committee  was  formed  called  the  Com- 
mittee of  Mexican  Bondholders. 

A  special  committee  of  the  Chamber  of  Deputies  now  began 
a  studv  of  Robertson's  proposals,  and  their  conclusions  were 
embodied  in  a  law  dated  October  14,  1850,  which  constituted  a 
rejection  of  his  proposals. 

This  law  provided  that  if  the  holders  of  the  Mexican  bonds 
issued  in  London  and  converted  in  1846  accepted  its  provisions 
the  government  would  pay  over  to  them  P.  2,500,000  of  the 
American  indemnity. 

The  conditions  were  as  follows : 

1.  Interest  shall  be  reduced  to  3%  on  a  total  debt 

of  £10,241,650,  which  is  all  that  the  Nation 
recognizes. 

2.  All  unpaid  interest  up  to  the  date  of  the  signing 

of  a  new  contract  in  accordance  with  this  law, 
shall  be  considered  paid  with  the  P.  2,500,000. 

3.  For  the  payment  of  interest  the  following  reve- 

nues are  set  aside: 

(a)  25%  of  all  import  taxes  from  maritime  and 

frontier  custom  houses. 

(b)  75%  of  all  export  taxes.  Pacific  ports. 

(c)  5%  of  all  export  taxes,  Gulf  ports. 

(d)  If  the  proceeds   of  the  above   are  not   suffi- 

cient, the  balance  is  to  be  made  up  from 
the  general  revenues  of  the  nation. 

4.  During  the  first  6  years  the  excess  revenues 

under  clause  four,  if  any,  shall  be  used  for 
amortization  purposes,  and  thereafter, 
P.  250,000  shall  be  remitted  annually  for 
amortization  purposes. 

5.  The   bondholders   may   appoint   agents   in    the 

ports  to  receive  funds  collected, 

36 


The  same  day  that  the  law  was  approved  by  the  Senate, 
Francisco  Falconet,  representing  the  bondholders,  arrived  in 
Mexico  and  began  working  to  secure  a  modification  of  the 
terms  which  would  be  more  favorable  to  his  employers. 

The  government,  however,  preferred  to  deal  directly  with 
the  committee  and  forwarded  a  copy  of  the  law  to  London, 
together  with  a  note  addressed  to  the  chairman  of  the  com- 
mittee explaining  the  serious  condition  of  the  treasury,  so 
that  he  would  appreciate  the  sacrifice  the  nation  would  make 
in  disposing  of  its  best  revenues  to  pay  its  debts. 

The  bondholders,  in  a  general  meeting  in  December,  1850, 
accepted  the  law  of  October  14,  1850,  asking  the  government  to 
consider  bettering  their  condition  when  the  finances  of  the 
State  showed  improvement. 

Referring  to  the  measures  taken  by  the  government  to 
convert  its  debt,  Casasus  says  that  in  view  of  the  attacks  made 
by  the  conservative  press  the  government  at  that  time  could 
not,  and  should  not,  have  acted  in  any  other  manner.  The 
committee  of  bondholders  would  not  have  believed  in  promises 
or  agreements,  which,  although  made  in  accordance  with 
express  authorizations  of  the  government,  were  rejected  by  it, 
approved  by  a  new  Secretary  or  disapproved  by  his  successor 
in  office.  The  memory  was  still  fresh  of  the  conversion  of 
1846,  which  was  declared  void  by  Gomez  Farias,  accepted  by 
Haro  y  Tamariz,  disapproved  by  Villamil  and  again  approved 
by  Santa  Ana.  The  bondholders  had  not  yet  forgotten  the 
capitalization  of  1842,  which  was  not  ratified,  nor  the  con- 
version of  1837,  which  was  not  approved  until  1839. 

The  following  statement  of  the  conversion,  though  it  does 
not  agree  with  Casasus'  account,  is  confirmed  by  Montellano 
in  one  part  of  his  book,  and  yet  apparently  disavowed  by  him 
in  another.  The  difference  consists  in  the  fact  that  Casasus 
only  considers  eight  coupons,  from  July  1,  1847,  to  January  1, 
1851.  The  law  specifically  states  that  interest  shall  begin  on 
July  1,  1846,  which  makes  nine  coupons  to  January  1,  1851. 
If  interest  did  not  begin  on  the  date  fixed  by  law,  it  is  apparent 
that  interest  on  the  old  debt  should  be  computed  to  the  date 
the  new  debt  began  to  bear  interest : 

July  1,  1846,  principal  of  debt - - £10,241,650-00-0 

Accrued  interest  to  January  1,  1851 _ 2,304,371-05-0 

Total „ - £12,546,021-05-0 

Less: 

Remittance  of  cash  during  period  from  July  1,  1846, 

to  January  1,  1851 „ £393,015-12-0 

Part  of  American  Indemnity,  P.  2,500,000  at  five  to  one  500,000-  0-0 

Total  Deduction £893,015-12-0 

Total  debt,  July  1,  1851 - £11,653,005-13-0 

Reduction  granted  by  bondholders -.... 1,411,355-13-0 

Amount  of  new  debt £10,241,650-  0-0 

37 


The  reduction  in  the  amount  of  the  debt  was  unimportant 
in  comparison  with  the  reduction  of  interest  as  follows: 

b'/'r  interest  on    £10,241,650— old  debt £512,082-10-0 

3%  interest  on    £10,241.650— new  debt 307,249-10-0 

Difference £204,833-  0-0 

Equal  to  P.  1,024,165.00  per  annum. 
Additional  advantages  were  also  secured  in  the  matter  of 
amortization  charges.  For  six  years,  only  the  excess  receipts 
aft3r  the  payment  of  interest  were  to  be  used  for  amortization 
purposes,  after  which  date  P.  250,000  per  annum,  instead  of 
P.  500,000  per  annum,  was  to  be  paid,  as  stipulated  in  the  law 
of  1846. 

1850-1863. 
CONVERSION  OF  1863 

Manuel  Payno  was  appointed  by  the  government  late  in 
1850  to  proceed  to  London,  effect  the  conversion  of  the  debt, 
and  pay  over  the  P.  2,500,000  previously  mentioned.  He 
arrived  in  London  on  May  10,  1851,  concluded  the  conversion 
and  paid  the  first  coupon,  although  to  do  this,  he  had  to 
borrow    £10,000. 

The  United  States  Government  declined  to  pay  the  warrant 
for  P.  2,500,000  in  London  on  the  ground  that  it  was 
required  to  pay  the  indemnity  in  Mexico  City  in  accordance 
with  the  terms  of  the  treaty  between  the  United  States  and 
Mexico.  The  government  later  turned  over  the  specified 
amount  in  silver  to  the  agent  of  the  bondholders  in  Mexico 
during  May,  1852. 

Difficulties  now  arose  over  the  exportation  of  the  silver, 
which  was  subject  to  an  export  tax.  When  the  matter  was 
referred  to  Congress,  it  decided  that  the  tax  must  be  paid. 
The  Minister  of  Finance,  however,  gave  permission  to  export 
the  silver  tax  free. 

French,  British  and  Spanish  creditors  of  tne  government 
who,  under  various  diplomatic  conventions  were  entitled  to  a 
portion  of  the  taxes,  protested  against  this  decision,  and  the 
lower  house  preferred  charges  against  the  Minister  of  Finance 
for  violating  various  articles  of  the  constitution.  However, 
before  he  could  be  impeached,  political  changes  resulted  in  his 
removal  from  office. 

A  serious  disagreement  now  arose  over  the  interpretation 
of  Section  2  of  the  law  of  1850,  which  reads: 

"That  said  P.  2,500,000  with  the  funds  already  received 
to  the  date  of  this  law  and  which  may  be  received  up  to  the 
date  of  the  approval  of  the  agreement  which  is  proposed 
today,  shall  be  exchanged  in  full  payment  of  all  interest 
accrued  to  the  date  of  the  approval  of  the  agreement." 

38 


The  Mexican  Government  construed  this  to  mean  all  tunds 
which  had  been  received  in  London  up  to  the  date  specifiea. 
The  bondholders  claimed  all  funds  which  had  been  collected 
for  their  account  in  Mexico  to  the  same  date,  in  accordance 
with  previous  agreements. 

The  committee  submitted  the  question  to  the  attorneys 
of  the  British  Crown,  who  ruled  that  the  bondholders  were 
correct  in  their  contention.  This  ruling,  communicated  to  the 
Mexican  Congress  by  the  agent  of  the  bondholders,  produced 
no  result. 

Interest  payments  were  met  with  difficulty  up  to  Decem- 
ber, 1853,  after  which  they  were  again  suspended  on  account 
of  the  revolution  of  Ayutla.  Upon  the  establishment  of  a 
new  government,  about  1855,  the  bondholders  again  sought 
payment  of  their  claims. 

On  January  3,  1857,  the  government  issued  a  decree  author- 
izing the  bondholders  to  name  agents  in  each  of  the  ports 
of  the  Republic,  with  authority  to  collect  the  amounts  due 
direct  from  the  importers  and  exporters. 

At  this  point  a  short  review  of  political  events  from  1847 
to  1867  is  necessary  to  a  proper  understanding  of  Mexico's 
financial  condition  and  of  her  policy  relating  to  her  foreign 
debt. 

The  war  with  the  United  States  was  concluded  on  February 
2,  1848,  by  the  treaty  of  Guadalupe  Hidalgo.  General  Joaquin 
Herrera  became  President,  June  3,  1848,  and  held  office  until 
December  31,  1850.  He  was  the  sponsor  for  the  conversion 
law  of  1850.  Aristi  was  elected  and  took  office  January  1,  1851, 
and  resigned  in  1852  as  the  result  of  a  revolution.  In  1853, 
Congress  elected  Juan  Bautista  Ceballos,  who  was  formerly 
President  of  the  Supreme  Court.  He  disliked  the  attitude  of 
Congress  and  dissolved  it.  Congress  met  in  a  private  house, 
declared  Ceballos  a  traitor  and  elected  as  President  Mugica  y 
Osorio.  This  gentleman  declined  the  office  and  Ceballos  re- 
signed. Manual  Mario  Lombardini  then  became  Acting  Presi- 
dent, and  secured  the  election  of  Santa  Ana,  who  again  became 
President  on  April  15,  1853. 

Santa  Ana  played  the  role  of  a  dictator,  dissolving  Con- 
gress, abolishing  state  legislatures,  re-establishing  the  Jesuits, 
and  adopting  other  measures  to  centralize  and  enhance  his 
power. 

Long  before  this  there  had  been  a  strong  movement  on  foot 
to  establish  a  monarchy  in  Mexico,  under  the  rule  of  a  Euro- 
pean prince.  This  plan  was  now  revived,  and  Santa  Ana 
appointed  Gutierrez  Estrada  a  special  commissioner  to  negoti- 
ate with  Great  Britain,  France,  Austria  and  Spain  to  that  end. 

On  December  16,  1853,  Santa  Ana  declared  himself  "Per- 
petual Dictator,"  which  caused  another  revolution  and  resulted 
in  Santa  Ana's  departure  from  Mexico  in  August,  1855. 

39 


This  revolution  was  the  bej?inning  of  the  general  reform 
movement  which  terminated  with  the  adoption  of  the  Consti- 
tution of  1857.  The  Constitution  of  1824,  modeled  upon  that 
of  the  United  States,  was  apparently  nat  suited  to  the 
Mexicans, 

The  Catholic  Church  owned  more  than  one-fourth  of  all 
the  land  in  Mexico.  Ecclesiastical  and  military  courts  had 
exclusive  jurisdiction  over  offenses  committed  by  the  clergy 
and  the  military. 

In  1856  the  first  reform  law  was  passed  which  sought  to 
crush  the  pov/er  of  the  church.  In  February,  1857,  the  new 
Constitution  was  adopted  which,  it  was  hoped,  would  remove 
many  of  the  causes  of  past  revolutions.  It  destroyed  the 
dominion  of  the  church,  and  by  its  democratic  provisions 
antagonized  all  those  who  thought  that  a  monarchy  was  the 
solution  of  the  Mexican  problem. 

The  monarchial  and  clerical  parties  now  combined  to  fight 
the  constitutionalists,  and  were- strong  enough  to  gain  tempo- 
rary success.  Threatened  by  arrest,  seventy  constitutionalist 
deputies  fled  to  Queretaro,  organized  under  the  Constitution 
and  elected  Benito  Juarez  as  President  on  January  10,  1858. 

Leaving  Mexico  City,  Juarez  proceeded  to  Vera  Cruz,  via 
Mazatlan,  Panama  and  Havana  and  established  his  govern- 
ment at  Vera  Cruz  on  May  4,  1858.  He  was  recognized  as 
President  of  Mexico  by  the  United  States  on  April  9,  1859. 

The  adherents  of  the  administration  in  power  were  known 
as  the  Reactionaries.  The  supporters  of  Juarez  were  known 
as  the  Constitutionalistas  or  Juaristas. 

These  were  the  two  parties  in  the  field,  the  first  repre- 
senting the  church  and  army,  and  the  other  formed  of  a  small 
group  of  intelligent  men  determined  upon  the  establishment 
of  a  stable  government. 

The  struggle  between  the  two  factions  is  known  as  the 
"War  of  the  Reform"  and  was  by  all  odds  the  bloodiest  in  the 
history  of  Mexico,  except  the  conquest  of  Mexico  by  Cortes. 
Due  to  the  church  question,  it  partook  of  the  nature  of  a 
religious  war. 

It  was  during  this  period  that  Juarez  issued  the  decree 
nationalizing  and  sequestrating  church  property  in  Mexico, 
establishing  civil  marriage  and  providing  for  religious  toler- 
ation and  the  secularization  of  cemeteries. 

Juarez,  successful  in  the  field,  called  an  election  for  Presi- 
dent, was  elected  and  installed  in  office  during  May,  1861. 

In  July,  1861,  Congress  suspended  all  payments  on  the 
foreign  debt  for  two  years  which,  although  necessary,  was 
soon  followed  by  the  foreign  intervention  of  Great  Britain, 
France  and  Spain.  The  treaty  between  these  nations  was 
signed  in  London  on  October  31,  1861.  Spain  secretly  desired 
to  establish  an  empire  in  Mexico  with  a  member  of  the  Bourbon 
family  on  the  throne.     France  also  planned  to  establish  an 

40 


Empire,  and  Napoleon  III  secretly  offered  the  crown  to  Ferdi- 
nand Maximilian,  Archduke  of  Austria.  The  Spanish  squad- 
ron appeared  before  Vera  Cruz  in  the  latter  part  of  December, 
1861,  and  the  Spanish  forces  proceeded  to  occupy  the  city. 
The  English  ^nd  French  fleets  arrived  during  January,  1862. 

With  a  view  to  arranging  matters  amicably,  if  possible, 
President  Juarez  invited  the  representatives  of  the  invading 
nations  to  a  conference  which  was  held  in  Orizaba  in  April, 
1862. 

France  demanded  $12,000,000  with  no  specifications,  in 
addition  to  $1,500,000  for  the  Jecker  claim  for  funds  advanced 
to  Juarez's  opponents,  although  it  was  proved  that  only  one- 
half  of  this  latter  amount  had  been  delivered. 

It  being  evident  that  France  was  determined  on  war,  Great 
Britain  and  Spain  withdrew.  The  first  battle  of  the  war  was 
won  by  Mexico  on  May  5,  1862,  but  French  reinforcements 
resulted  in  the  capture  of  Puebla  in  May,  1863,  and  the 
entrance  of  French  troops  into  Mexico  City  during  the  next 
month. 

Juarez  successively  established  his  government  in  San 
Luis  Potosi,  Saltillo,  Monterey,  Chihuahua  and  Ciudad  Juarez, 
just  across  the  border  from  El  Paso. 

The  United  States  Government,  of  course,  vigorously 
opposed  the  establishment  of  an  empire  in  Mexico,  but  could 
do  little  more  than  protest  while  the  War  of  the  RelDellion  was 
in  progress.  The  Washington  authorities  consistently  treated 
with  the  Juarez  Government  as  the  de  facto  government  of 
Mexico,  and  aided  it  with  money  and  arms.  At  the  end  of 
the  War  of  the  Rebellion,  in  1865,  the  United  States  had  a 
formidable  army  of  veterans  which  could  take  aggressive 
action  to  support  its  views.  President  Lincoln  had  already 
declared  that  the  occupation  of  Mexico  by  the  French  was  an 
offense  to  the  people  of  the  United  States  and  he  now  demanded 
that  the  French  troops  be  withdrawn  without  delay. 

Napoleon  III  yielded  to  this  demand  and  ordered  the  French 
troops  withdrawn.  Maximilian,  badly  advised,  decided  to 
continue  the  fight  and  after  varying  fortunes,  surrendered  to 
Juarez  on  May  15,  1867.  He  was  convicted  by  court-martial 
and  executed  June  19,  1867. 

To  what  extent  the  foreign  debt  situation  influenced  Great 
Britain  to  intervene  with  France  and  Spain,  is  not  apparent. 
It  was  probably  one  of  a  number  of  factors  which  brought 
matters  to  a  crisis,  but  it  certainly  was  not  the  only  reason  nor 
the  most  important  one. 

All  three  nations  presented  claims  during  1861-1862.  Great 
Britain  demanded  reparation  for  the  taking  of  P.  660,000  from 
her  legation  in  Mexico  City  by  one  of  the  generals  opposed  to 
Juarez.  This  money  had  been  collected  by  Juarez  and  had 
been  turned  over  to  the  British  legation  for  British  bond- 
holders. 

41 


Another  purpose  of  the  intervention  was  to  secure  the 
payment  of  amounts  due  to  the  subjects  of  the  subscribing 
nations  in  accordance  with  diplomatic  conventions. 

From  time  to  time  during  the  preceding  years  these  con- 
ventions had  been  entered  into,  providing  for  the  payment  of 
amounts  claimed  to  be  due  to  citizens  of  foreign  countries. 
When  payment  was  suspended  on  all  foreign  indebtedness  in 
July,  1861,  there  were  a  number  of  such  treaties  in  force, 
providing  that  payment  should  be  made  in  the  usual  way  by  a 
percentage  of  the  customs  receipts. 

The  following  statement,  showing  the  commitment  against 
customs  receipts,  is  taken  from  Mr.  Payno's  book  on  ''Mexico 
y  sus  Cuestiones  Financieras" : 

DUTIES   ON   GOODS   BROUGHT  IN   BY   FRENCH   VESSELS. 

British  debt  „ 25% 

British  convention  29% 

French  convention  „ 25% 

Spanish  convention  „ 8% 

British  debt  for  payment  of  arrears ~ 5% 

Total _ 92% 

DUTIES  ON  GOODS  BROUGHT  'iN  BY  VESSELS  OF  OTHER 

NATIONS 

British   debt   _ 30% 

British  convention _ 29% 

French   convention   _ _ 8% 

Spanish  convention  8% 

Total „ 75% 

If  the  additional  charge  agreed  to  by  the  party  in  oppo- 
sition to  Juarez  for  the  payment  of  the  Jecker  claim  had  been 
assessed,  the  total  customs  receipts  would  not  have  sufficed 
for  the  settlement  of  these  claims. 

As  the  customs  duties  were  the  principal  source  of  revenue 
in  those  days,  it  is  clear  why  payments  were  suspended. 
Customs  revenues  were  further  reduced  by  the  vicious  practice 
which  prevailed  up  to  a  comparatively  recent  date  of  sailing 
custom  house  certificates  at  a  discount. 

We  can  now  return  to  a  discussion  of  the  events  leading 
up  to  the  conversion  of  1863,  with  a  reference  to  the  legal 
aspects  of  intervention  for  the  payment  of  loans  made  by 
foreign  citizens. 

After  the  law  of  July  17,  1861,  was  passed,  suspending 
payments  to  all  classes  of  creditors  for  two  years,  the  British 
Minister,  Sir  Charles  Wyke,  began  negotiations  with  the 
Mexican  Secretary  of  Foreign  Relations,  with  a  view  to  secur- 
ing a  modification  of  this  law.  On  November  21,  1861,  an 
agreement  was  signed  but  not  ratified,  known  as  the  Zamacona- 
Wyke  convention,  providing  for  the  payment  to  British  repre- 
sentatives of  a  portion  of  the  customs  revenues  in  accordance 
with  former  agreements,  and  practically  nullifying  the  law 
of  July  17,  1861.     Casasus  states  that  this  agreement  was 

4S 


rejected  by  Congress  and  that  Sir  Charles  Wyke  presented 
an  ultimatum  shortly  afterwards. 

The  sequence  of  events  thereafter  is  not  clear.  On  Novem- 
ber 23,  1861,  Congress  passed  a  law  repealing  the  provisions 
of  the  law  of  July  17,  1861,  relating  to  the  diplomatic  conven- 
tions and  the  British  debt,  and  directing  that  payments  be 
made  immediately  in  accordance  with  laws  and  conventions 
in  force  prior  to  that  date. 

About  a  month  before  Congress  took  this  action,  the  treaty 
between  Great  Britain,  France  and  Spain,  for  intervention 
in  Mexico,  had  been  signed  in  London  on  October  31,  1861. 

The  ultimatum  of  Great  Britain  submitted  by  Sir  Charles 
Wyke  is  interesting  as  indicating  the  measures  considered 
necessary  at  that  time  to  secure  payment  of  amounts  due.  Its 
terms  were  as  follows: 

1.  The  immediate  repeal  of  the  law  of  July  17,  1861. 

2.  Commissions  to  be  established  in  the  ports  of 

the  Republic  to  be  appointed  by  the  British 
Government  to  secure  the  payment  of 
amounts  due  under  diplomatic  conventions. 

3.  That  such  commissioners  shall  have  the  right 

to  reduce  the  dues  imposed  by  the  present 
tariff,  one-half  or  less,  if  considered  neces- 
sary. 

The  above  ultimatum  does  not  include  any  reference  to  the 
payment  of  interest  on  the  British  debt.  As  stated  above, 
this  note  was  presented  about  one  month  after  the  intervention 
agreement  was  signed  by  Great  Britain,  France  and  Spain. 

The  Zamacona-Wyke  convention  is  the  only  one  of  a  nuni- 
ber  of  agreements  entered  into  between  the  British  diplomatic 
representatives  and  the  Mexican  Government  in  which  the 
payment  of  interest  and  amortization  charges  on  the  British 
debt  is  mentioned,  but  this  convention  was  not  ratified  by 
either  of  the  two  countries  interested. 

It  does  not  appear  that  the  settlement  of  the  British  debt 
was  ever  made  the  subject  of  a  treaty  between  Great  Britain 
and  Mexico,  but  a  precedent  for  such  action  was  estabhshed 
by  a  treaty  of  1851  between  the  two  countries  providing  for 
the  settlement  of  a  loan  of  P.  2,000,000  made  by  Montgomery, 
Nicod  &  Company  to  the  Mexican  Government. 

What  conditions  surrounded  this  loan  which  induced  the 
British  Government  to  act,  while  it  consistently  refrained 
from  official  action  to  secure  payment  of  the  British  debt,  are 
unknown. 

The  committee  of  Mexican  bondholders  in  London  made 
repeated  attempts  to  induce  the  British  Government  to  take 
measures  to  secure  payment  of  their  claims.  The  policy  of  the 
government,  as  indicated  by  Lord  Russell  on  several  occasions, 
was  that  the  claims  of  British  subjects  against  a  foreign  gov- 


ernment  for  the  repayment  of  sums  voluntarily  loaned  with 
interest  due  were  not  matters  justifying  governmental  action. 

The  bondholders  held  a  meeting  in  conjunction  with  mer- 
chants of  Glasgow,  Liverpool  and  Manchester,  in  September, 
1861,  and  petitioned  Lord  Russell  not  only  for  the  guarantees 
which  they  had  repeatedly  requested,  but  also  for  intervention 
in  Mexico  by  Great  Britain  to  reestablish  public  order,  afford 
protection  to  British  subjects  and  defend  the  sacred  interests 
of  humanity. 

Lord  Russell  replied  in  substance: 

"That  Her  Majesty's  government  had  the  right  under 
treaties  and  in  accordance  with  all  the  laws  which  ruled  inter- 
national relations  to  demand  the  security  of  persons  and  prop- 
erty of  British  subjects  and  compliance  with  special  obliga- 
tions contracted  by  Mexico;  that  Her  Majesty's  government 
would  exercise  this  right,  but  did  not  think  it  would  be  wise  to 
intervene  in  the  interior  government  of  Mexico. 

"You  think  that  a  protecting  force,  although  small,  with 
the  simple  object  of  maintaining  the  public  tranquility,  would 
be  sufficient  to  accomplish  the  purpose.  A  large  army  would 
not  be  sufficient  to  restore  tranquility.  This  is  a  task  for  the 
Mexicans  themselves.  There  are  very  few  cases  where  foreign 
intervention  is  beneficial,  and  in  these  few  cases  it  is  necessary 
that  a  large  and  numerous  party  exist  prepared  to  approve 
foreign  aid.  I  am  obliged  to  state  that  I  see  no  proof  that  a 
party  like  this  exists  in  Mexico. 

"Her  Majesty's  government,  therefore,  will  limit  its  action 
to  the  clear  and  legitimate  purpose  of  demanding  from  the 
Mexican  Government  de  facto,  even  if  not  regularly  organized, 
respect  for  the  persons  and  properties  of  British  subjects  in 
Mexico  and  compliance  with  obligations  which  have  been  con- 
tracted." (1). 

After  the  intervention  treaty  of  1861  was  signed,  the  bond- 
holders again  presented  their  claims  to  Lord  Russell,  with  the 
statement  that  their  settlement  should  be  included  as  one  of 
the  objects  of  the  intervention. 

His  reply  was  to  the  effect  that  he  could  not  enter  into 
a  detailed  discussion  with  the  bondholders;  that  Sir  Charles 
Wyke  had  been  given  ample  discretion  to  do  what  he  could 
regarding  Mexican  claims,  and  that  such  instruction  should 
not  be  fettered  with  special  instructions  regarding  details. 

Nevertheless,  there  was  a  great  difference  between  claims 
founded  on  agreements  between  the  Mexican  government  and 
British  subjects,  in  which  the  latter  were  responsible  for  all 
the  risks  incurred  to  obtain  the  consequent  profits,  and  those 
other  claims  which  had  been  recognized  by  British  Ministers 
accredited  to  Mexico,  or  government  employees,  and  which  had 
also  been  approved  and  ratified  by  the  Crown. 

(1)  Translated  freely  from  Casasus'  "Historia  de  la  Deuda 
Inglesa."     English   original  not  available. 

44 


Regarding  the  same  matter  of  securing  payment  by  forcible 
measures,  Lord  Palmerston  before  Parliament  said  that  the 
British  Government  never  had  taken  measures,  nor  would  it, 
to  require  the  government  of  Mexico  to  settle  claims  of  persons 
who,  by  voluntary  act,  had  loaned  funds  to  the  government  of 
the  Republic,  nor  could  the  failure  to  pay  such  debts  ever  be 
considered  as  a  reason  for  war. 

The  intervention  treaty  likewise  contains  no  direct  refer- 
ence to  the  British  debt,  although  the  language  used  would 
permit  action  to  be  taken  towards  securing  a  settlement  if 
desired. 

The  preamble  states  the  purpose  of  the  treaty,  which  was 
to  demand  from  the  authorities  of  Mexico  better  protection 
for  the  persons  and  property  of  subjects  of  the  contracting 
nations,  as  well  as  compliance  with  obligations  which  the  said 
Republic  had  contracted  with  them. 

The  high  contracting  parties  being  desirous  that  the 
measures  to  be  taken  should  not  be  exclusive,  invited  the 
United  States  to  become  a  fourth  member  of  the  concert,  but 
Secretary  of  State  Seward  declined  in  the  most  positive  terms. 

So  much  for  the  position  of  Great  Britain.  The  attitude 
of  France  regarding  her  claims  at  that  time,  including  the 
Jecker  claim,  has  been  universally  condemned  and  affords  no 
precedents  worthy  of  emulation. 

Jecker  was  a  Swiss  who  had  loaned  some  money  to  the 
Mexican  Government  upon  disgraceful  terms.  Not  being  able 
to  recover,  he  approached  the  Duke  of  Morny,  the  illegitimate 
brother  of  Napoleon  III,  and  offered  him  30%  of  all  sums 
recovered,  if  he  should  induce  his  brother  to  intervene  in 
Mexico  for  that  purpose.  This  appears  to  have  been  the  incep- 
tion of  the  intervention  idea,  which  subsequently  resulted  to 
the  great  financial  advantage  of  Jecker  and  the  Duke  of  Morny. 

If  the  British  Government  officially  refrained  from  using 
forceful  means  to  collect  interest  due  British  subjects  by  the 
Mexican  Government,  those  subjects  did  not  refrain  from 
using  the  intervention  to  secure  a  settlement. 

Before  the  new  Emperor  could  sell  a  new  bond  issue  in 
Europe  to  provide  funds  for  the  enterprise,  it  was  necessary 
to  reestablish  confidence  in  Mexican  securities  by  providing 
for  bonds  already  in  circulation. 

Maximilian  took  the  oath  of  office  in  the  castle  of  Miramar 
on  the  Gulf  of  Trieste,  on  April  10,  1864,  and  on  the  same  day 
signed  what  is  called  the  Treaty  of  Miramar,  by  which  he 
agreed  to  pay  the  Jecker  claims,  reimburse  France  for  the 
expenses  of  the  intervention,  pay  French  troops  in  Mexico,  and 
issue  3%  bonds  in  settlement  of  unpaid  interest  on  the  British 
debt,  at  the  rate  of  £100  of  new  bonds  for  every  £60  of 
interest  outstanding. 

The  fact  that  the  British  bondholders  accepted  Maximil- 
ian's term.s,  received  new  bonds  for  their  unpaid  interest  and 


indirectly  aided  him  in  his  project  of  abolishing  constitutional 
government  in  Mexico,  was  used  after  the  second  empire  had 
collapsed  as  an  argument  why  the  British  bonds  and  interest 
should  not  be  paid.  The  basis  for  the  argument  was  that  the 
British  bondholders  had  violated  the  laws  of  neutrality. 

The  computation  of  unpaid  interest  in  accordance  with  tho 
Treaty  of  Miramar  was  as  follows: 

Amount  of  debt,  January  1,  1851,  after  conversion £10,241,650-0-0 

Interest  accrued  to  July  1,  1863 £3,840,618-15-0 

Interest  paid  to  July  1,  1863 921,748-10 

Balance  of  interest  due £2,918,870-50-0 

Capitalized    at    60 4,864,800-0-0 

Total  debt,  July  1,  1863 £15,106,450-0-0 

What  happened  to  the  various  agreements  and  laws  pro- 
viding for  the  setting  aside  of  portions  of  the  customs  revenues 
for  foreign  bondholders  is  not  apparent. 

1863-1885. 

After  the  conversion  of  1863,  the  Mexican  Imperial  Gov- 
ernment appears  to  have  paid  the  interest  on  the  1851,  as  well 
as  on  the  1864  bonds  until  July  1,  1866. 

Napoleon  III  had  by  this  time  become  tired  of  the  Mexican 
enterprise  and  the  constant  need  of  furnishing  funds  to  Maxi- 
milian. The  War  of  the  Rebellion  in  the  United  States  had 
terminated  in  1865  without  the  dismemberment  of  the  Union, 
which  he  had  counted  upon  to  aid  his  Mexican  project.  Con- 
gress took  active  measures  to  force  France  to  withdraw,  and 
Marshal  Bazaine,  in  1866,  began  to  concentrate  his  troops  for 
transportation  to  France. 

Maximilian's  death  in  June,  1867,  was  followed  in  July 
of  that  year  by  President  Juarez's  return  to  Mexico  City  after 
an  absence  of  five  years.  In  August  he  called  a  general  elec- 
tion, was  elected,  and  began  a  new  term  as  President  in 
December,  1867. 

Negotiations  with  the  Mexican  Government  were  again 
begun  by  the  committee  of  bondholders  early  in  1868,  but  the 
old  subject  of  unpaid  interest  was  now  compficated  by  ques- 
tions as  to  the  legal  position  of  the  bondholders  as  a  resuit  of 
their  dealings  with  the  "Usurper  Maximilian." 

Casasus  discusses  this  question  in  detail  with  great  ability, 
and  quotes  from  communications  of  the  government  to  the 
bondholders  and  from  statements  made  by  public  officials  at 
the  time. 

In  view  of  the  situation  which  now  exists  in  Mexico 
relating  to  the  validity  of  securities  issued  by  the  "Usurper 
TTr.-"ta,"  this  phase  of  the  Mexican  debt  policy  is  of  particular 
interest  at  present. 

Was  the  act  of  the  bondholders  in  accepting  new  bonds 
from  the  Emperor  of  Mexico  in  payment  of  unpaid  interest 

46 


coupons  a  violation  of  the  laws  of  neutrality  ?  Mexican  writers 
assumed  that  such  exchange  was  a  material  aid  to  the  Usurper 
in  seeking  to  supplant  a  regularly  organized  government. 

Matias  Romero,  Minister  of  Finance  in  1868,  wrote  to  the 
Committee  of  Bondholders  to  the  effect  that  since  the  bond- 
holders had  entered  into  a  new  convention  regarding  the  debt 
with  the  Usurper  Maximilian,  who  never  had  the  right  to 
obligate  the  nation,  and  in  this  manner  lent  their  aid  and 
co-operation,  they  had  placed  themselves  in  a  difficult  position 
which  could  only  be  settled  through  negotiations  and  mutual 
concessions. 

The  bondholders  took  the  position  that  they  could  not  be 
held  responsible  for  an  arrangement  proposed  under  conditions 
which  left  them  no  liberty  of  action. 

Casasus  quotes  several  authorities  on  international  law 
and  concludes  his  presentation  of  the  case  as  follows: 

"In  effect,  as  we  have  seen  previously,  the  loan  of  Glyn 
Mills  (the  English  agents  for  the  imperial  loan  of  200,000,000 
francs)  was  made  in  order  to  furnish  necessary  funds  to 
Emperor  Maximilian  to  continue  the  unjust  war  against  the 
Rernb  c,  tho*"  is  fo  say,  to  continue  committing  hostile  acts 
against  one  of  the  belligerents.  Therefore,  as  the  acquiescence 
of  the  bondholders  was  indispensable  to  the  success  of  the 
loan,  and  the  Emperor  proposed  the  capitalization  of  unpaid 
interest  coupons  to  secure  their  assistance  to  the  accomplish- 
ment of  his  aims,  their  acceptance  made  them  co-authors 
of  the  hostile  act  directly  executed  by  the  subscribers  to  the 
loan. 

**Nor  could  they  allege  ignorance  regarding  the  war  in 
which  the  Republic  was  engaged,  because  the  British  Govern- 
ment had  received  a  communication  directed  by  Minister  de  la 
Fuente  to  all  European  governments  explaining  the  reasons 
which  had  occasioned  the  departure  of  the  government  from 
the  capital  of  the  Republic;  because,  in  addition,  England  had 
net  official  y  recognized  Maximilian  and  lastly,  because  a  few 
days  before  the  bonds  of  the  loan  were  placed  in  circulation 
in  the  London  market,  Senor  Jesus  Escobar  Armendais  pub- 
lished a  protest  in  the  name  of  the  government  against  the 
loan. 

'The  present  case  is  not  the  only  one  which  has  occurred 
in  the  world.  Among  others  may  be  cited  that  of  Spain  in 
1821.  The  constitutional  government  at  that  time  had  issued 
in  London  7%  and  5%  bonds  for  a  purpose  hostile  to  Fernando 
VII,  and  these  acts  executed  by  British  subjects  in  England 
were  characterized  by  the  Holy  Alliance  as  a  violation  of  the 
laws  of  neutrality,  and  the  loans  were,  in  fact,  repudiated  by 
Fernando  when  he  returned  to  the  government  of  Spain." 

It  is  not  the  purpose  of  this  report  to  show  whether  Casasus 
is  correct  in  his  conclusion.  International  law  is  a  collection  of 
precedents  accepted  by  civilized  nations  as  indicating  the  rules 

47 


which  should  be  observed  in  their  deaHngs  with  each  other. 
The  acts  of  nations  in  dealing  with  similar  situations  in  the 
past  have  not  been  such  as  to  indicate  that  these  rules  are 
unchangeable.  A  neutral  state  may  not  loan  money  to  a 
belligerent  state  without  violating  the  laws  of  neutrality. 
Subjects  of  a  neutral  state  may  lend  money  to  a  belligerent 
state  at  war  with  another  state,  but  may  not  lend  money  to 
subjects  of  a  state  in  order  to  assist  them  in  prosecuting  a  war 
against  their  own  government.  If  the  subjects  of  a  state  in 
revolt  against  their  own  government  had  been  recognized  by 
the  government  of  the  citizens  lending  the  money,  then  the 
loan  of  money  was  the  act  of  a  neutral. 

During  the  Civil  War  the  Confederate  States  negotiated 
a  loan  without  interference  in  London,  Frankfort,  Paris  and 
Amsterdam.  Since  they  had  been  recognized  abroad  such 
financial  assistance  was  not  considered  a  violation  of  neutrality. 

Maximilian  had  not  been  recognized  by  Great  Britain  at 
the  time  the  loan  was  made.  This  difficulty,  however,  is  met 
by  Calvo,  who  holds  that  as  a  neutral  state  cannot  control  the 
acts  of  individuals  in  certain  commercial  transactions,  neither 
can  it  be  held  responsible  for  the  consequences  of  their  acts. 

Casasus  concludes  that  the  action  of  the  British  bond- 
holders in  reference  to  the  Mexican  Imperial  Loan  was  a  viola- 
tion of  neutrality.  He  does  not  hold  the  British  Government 
responsible  for  the  acts  of  its  subjects,  but  proceeds  to  discuss 
the  penalty  which  the  Mexican  Government  may  impose  upon 
those  British  subjects  who  took  part  in  the  operation. 

President  Juarez,  on  December  28,  1868,  stated  to  the  rep- 
resentatives of  the  bondholders  that  in  making  agreements 
with  the  Usurp3r  Maximilian  they  had  voluntary  rescinded 
all  agreements  which  they  had  with  the  government  of  the 
Republic,  not  only  in  accordance  with  Mexican  laws,  but  also  in 
accordance  with  the  rights  of  man.  They  violated  their  agree- 
ment, not  only  by  recognizing  an  intruding  and  illegitimate 
power  which  was  an  enemy  of  Mexico,  but  because  they  had 
up  to  a  certain  point  given  this  enemy  their  moral  support, 
thus  contributing  to  make  it  appear  before  the  world  as  the 
rightful  government  of  Mexico. 

The  holders  of  bonds  found  it  convenient  to  make  agree- 
ments of  a  special  character  with  the  Usurper  Maximilian  as 
Emperor  and  these  agreements  in  the  judgment  of  the  gov- 
ernment of  Mexico  changed  the  character  of  the  obligations 
previously  existing  between  the  government  and  the  bond- 
holders. 

"By  virtue  of  the  acts  of  the  bondholders  themselves  the 
government  of  Mexico  considers  that  the  stipulations  which 
existed  between  the  bondholders  and  the  government  have 
been  rendered  void  and  that  it  will  be  necessary  to  enter  into 
new  agreements  to  define  the  rights  and  obligations  of  both 
parties. 

4S 


"The  government  of  Mexico  is  disposed  to  concede  all  that 
is  just  and  equitable  and  has  no  doubt  that  the  bondholders  for 
their  part  are  animated  by  the  same  desire,  which  will  facili- 
tate a  settlement  of  this  matter." 

Juarez  declined  to  assume  any  responsibility  for  obligations 
incurred  by  Maximilian,  as  well  as  responsibility  for  the  pay- 
ment of  interest  during  the  time  the  bondholders  had  accepted 
another  debtor. 

Juarez  continued: 

"Because  the  bondholders  had  recognized  an  intrusive  and 
enemy  authority  as  the  government  of  Mexico,  and  by  this  act 
had  rendered  moral  aid  which  contributed  largely  to  prolonging 
the  war  of  intervention  and  making  it  more  sanguinary,  the 
bondholders  are  partly  responsible,  possibly  without  such 
intention,  for  the  misfortunes  which  afflicted  the  Republic 
during  this  war  and  which  helped  to  create  the  state  of  pros- 
tration and  annihilation  which  has  resulted  from  the  said  war. 
"Nothing  else,  therefore,  is  more  natural,  granting  that 
they  contributed  to  create  the  bad  financial  conditions  which 
now  exist  in  the  Republic,  than  that  they  should  also  suffer  a 
part  of  the  consequences  of  their  acts,  thus  giving  a  necessary 
respite  so  that  she  can  again  resume  the  payment  of  her 
legitimate  debts." 

The  above  statement  of  President  Juarez  refers  more  par- 
ticularly to  the  validity  of  agreements  which  had  existed 
before  the  intervention,  providing  for  the  separation  of  certain 
portions  of  the  public  revenues  for  the  benefit  of  bondholders 
and  other  creditors  as  stipulated  in  a  number  of  diplomatic 
conventions. 

Whether  or  not  the  bondholders  had  violated  the  laws  of 
neutrality  and  thus  lost  their  rights  as  creditors  of  the  suc- 
ceeding government  became  an  academic  question  for  students 
of  international  law  when  the  government  finally  recognized 
the  validity  of  the  British  debt  as  it  existed  after  the  Con- 
vention of  1850. 

Such  official  recognition  had  been  granted  by  the  Minister 
of  Finance  some  time  prior  to  the  statement  of  President 
Juarez. 

The  statement  referred  to  was  not  accepted  as  final  by  the 
Committee  of  Bondholders,  who  insisted  that  the  Mexican 
government,  in  view  of  a  number  of  favorable  opinions  by 
Mexican  and  British  lawyers,  should  again  study  the  matter. 
The  government  replied  on  February  28,  1869,  to  the  effect 
that  it  had  not  changed  its  opinion. 

The  agent  of  the  bondholders  then  laid  his  case  before 
Congress,  which  upheld  the  opinion  of  the  Executive.  He  next 
proposed  a  settlement  of  their  claims  by  an  arrangement  which 
provided  for  the  construction  of  an  interoceanic  canal  across 
the  Isthmus  of  Tehuantepec,  the  concessionaires  to  pay  the 
bondholders  all  back  interest  up  to  1870  and  the  government 

4^ 


to  recognize  the  debt  and  interest.    This  proposal  was  rejected 
at  a  general  meeting  of  the  bondholders  as  being  impracticable. 

Various  other  proposals  were  presented  and  discussed  dur- 
ing 1870  and  1871  without  result. 

In  July,  1872,  President  Juarez  died,  and  Sebastian  Lerdo 
de  Tejada,  President  of  the  Supreme  Court,  became  President 
of  the  Republic.  He  called  a  special  Presidential  election  and 
began  a  four  year  term  in  December,  1872. 

In  January.  1876,  Porfirio  Diaz  headed  a  revolution  against 
Lerdo  which  resulted  in  Lerdo's  departure  for  the  United 
States  and  Diaz'  entrance  into  the  Capitol  in  November,  1876. 
In  the  following  April  Diaz  was  elected  President  for  the  four 
year  term  ending  November  80,  1880. 

Casasus  states  that  the  government  did  not  again  give 
serious  consideration  to  the  settlement  of  the  British  debt  until 
after  Diaz  was  established  in  office,  when  the  assiduous  bond- 
holders began  a  new  series  of  negotiations. 

For  the  first  time  in  its  history  there  now  appeared  in 
Mexico  an  appreciation  of  the  real  errors  which  had  always 
characterized  its  financial  policy.  Its  debts  had  imposed  a 
greater  burden  upon  the  revenues  of  the  nation  than  could  be 
discharged  therefrom. 

Romero,  the  Minister  of  Finance  in  1878,  presented  the 
problem  in  a  statement  to  Congress  as  follows: 

"The  necessity  of  complying  punctually  with  agreements 
to  establish  the  credit  of  the  country,  the  relatively  large  sums 
necessary  to  pay  interest  on  the  debt,  the  great  difficulty  under 
the  existing  conditions  in  the  nation  of  paying  interest.  Would 
it  be  better  not  to  enter  into  an  agreeijient  than  to  make  one 
and  break  it?" 

The  country  needed  development  to  provide  the  necessary 
resources,  and  to  accomplish  this  purpose  Romero  suggested 
to  Congress  that  the  creditors  of  the  nation  should  assist  in 
the  construction  of  public  works,  with  the  idea  that  the  in- 
crease in  revenues  resulting  therefrom  would  insure  the  pay- 
ment of  interest  on  the  debt  without  too  great  a  strain. 

Continuing,  Romero  said: 

"The  Nation  is  now  in  the  condition  of  a  debtor  who  owns 
undeveloped  resources  sufllicient  to  pay  all  his  debts  and  place 
him  in  a  state  of  opulence,  but  without  the  indispensable  means 
of  realizing  on  his  assets.  In  such  cases  the  debtor  frequently 
requests  an  extension  of  credit  to  enable  him  to  open  up  the 
fountains  of  riches  which  are  closed  because  of  the  lack  of  the 
things  needed  to  make  them  productive." 

He  concludes  his  statement  by  advocating  the  construc- 
tion of  railroads  which  would  put  "the  centres  of  population  in 
communication  with  the  coast,  would  develop  interior  com- 
merce and,  among  other  things,  the  use  of  products  which 
could  not  then  bear  the  high  charges  of  transportation. 


50 


The  bondholders  apparently  accepted  the  ideas  presented 
regarding  the  fundamental  weakness  of  Mexico's  financial  situ- 
ation and  the  necessity  of  internal  development.  Their  ready 
acceptance  of  the  suggestion,  however,  in  view  of  the  proposals 
submitted  by  them,  was  probably  due  to  the  same  reason  which 
had  guided  their  action  for  50  years  personal  gain. 

The  first  proposal  was  for  a  railroad  from  Mexico  via  Toluca 
to  the  Pacific  Ocean,  for  every  50  kilometers  of  finished  rail- 
road ths  governm.ent  to  redeem  £100,000  of  outstanding  gov- 
ernment bonds  at  par. 

This  proposal  was  modified  several  times  by  the  govern- 
ment and  the  bondholders.  It  was  finally  whipped  into  shape 
and  accepted  by  the  agent  of  the  bondholders. 

When  the  contract  was  published,  however,  the  bondholders 
rejected  it  and  informed  the  government  that  their  agent  had 
exceeded  his  instructions. 

The  next  attempt  to  settle  the  British  debt  was  in  connec- 
tion with  the  establishment  of  a  National  Bank.  This  does 
not  appear  to  have  been  approved. 

The  agent  of  the  bondholders,  having  secured  additional 
powers  from  London,  now  resumed  his  negotiations  regarding 
the  construction  of  railroads.  Congress  was  not  in  session  to 
approve  the  proposal,  and  negotiations  were  finally  discon- 
tinued when  the  government  gave  a  concession  for  the  road  to 
Messrs,  Symon,  Sullivan  and  Palmer. 

In  June,  1880,  the  government  appointed  a  commission  to 
prepare  a  plan  of  recognition,  liquidation  and  conversion  of  the 
entire  national  debt. 

In  October  they  submitted  a  project  for  a  consolidated  debt 
bearing  interest  at  3%  with  the  recognition  of  all  accrued 
interest  from  July  1,  1851,  to  June  30,  1880,  which  apparently 
was  never  seriously  considered  by  the  government. 

Towards  the  end  of  1882,  Senor  Cervantes  left  London  for 
Mexico  with  a  plan  which  the  President  of  the  Committee  of 
Bondholders  thought  would  be  accepted,  if  presented  by  the 
govern^Tient.  This  plan  contemplated  an  issue  of  £18,000,000, 
of  which  £2,000,000  were  to  satisfy  certain  claims  not  included 
in  the  conversions  of  1851-1864. 

This  proposal  reached  Mexico  too  late  to  receive  the  atten- 
tion of  Congress,  and  Cervantes,  accompanied  by  Senor  Rivas, 
friend  and  private  secretary  to  President  Gonzalez,  returned 
to  London  early  in  1883  and  signed  a  contract  shortly  after  his 
arrival  providing  for  the  issue  of  a  3^^  consolidated  loan  of 
£20,000,000,  of  which  £15,300,000  were  to  be  used  for  the 
conversion  of  the  old  debt. 

The  Minister  of  Finance  in  a  report  to  the  President  held 
that  under  the  authority  of  Congress  the  issue  of  bonds  in 
excess  of  the  amount  of  the  old  debt  was  illegal.  He  had  the 
good  sense  also  to  point  out  that  at  the  price  the  bonds  were 
then  quoted  in  London  the  government  would  have  to  issue 

51    . 


£4,000,000  in  Ijonda  to  secure  £1,000,000  in  cash  with  interest 
at  127r  actually  instead  of  37^. 

In  view  of  this  criticism  the  terms  of  the  contract  were 
modified  and  authority  sent  to  Senor  Rivas  to  sign  the  modified 
contract,  if  accepted  by  the  bondholders. 

The  contract  already  signed  by  Rivas  had  been  approved 
at  a  general  meeting  of  bondholders  on  May  18,  1883.  The 
rejection  of  this  contract  by  the  government  after  it  had  been 
properly  executed,  in  the  opinion  of  the  bondholders,  caused  a 
fresh  scandal  in  Great  Britain  similar  to  others  which  had 
occurred  in  the  past. 

The  Committee  of  Bondholders  believed  that  they  were  the 
victims  of  a  new  fraud  perpetrated  by  the  government.  Rivas, 
in  the  presence  of  witnesses,  stated  that  he  had  received  a 
telegram  from  the  President  to  the  effect  that  notwithstanding 
rumors  to  the  contrary,  the  contract  was  irrevocable. 

Naturally,  the  committee  now  wanted  to  be  informed  of  the 
nature  and  extent  of  the  powers  conferred  upon  Senor  Rivas 
by  the  President. 

Senor  Rivas  left  London  and  advised  the  Committee  that 
his  health  required  a  visit  to  Carlsbad.  The  committee  sent 
a  representative  there,  but  he  had  left  the  night  before  for 
Paris.  The  committee  immediately  ordered  its  secretary,  Mr. 
Holmes,  to  proceed  to  Paris.  After  four  or  five  days  Mr.  Holmes 
advised  the  committee  that  Senator  Rivas  had  received  certain 
authorizations,  but  he  was  unable  to  secure  a  copy.  Finally, 
on  September  19th  Senor  Rivas  submitted  a  statement  to  the 
committee  to  the  effect  that  some  substantial  modifications  in 
the  contract  were  necessary  before  it  could  be  approved. 

A  deputation  of  the  bondholders  called  upon  Senor  Rivas 
and  in  the  presence  of  all  his  friends  urged  him  to  furnish  them 
with  a  copy  of  his  authority  to  negotiate,  advising  him  at  the 
same  time  that  they  were  disposed  to  solve  any  difficulty 
presented. 

Senor  Rivas  expressed  himself  most  cordially  and  stated 
that  he  was  extraordinarily  obliged  to  the  deputation  for  their 
frankness,  and  promised  to  consider  their  suggestions  and  com- 
municate them  to  the  President, 

After  the  contract  referred  to  had  been  signed  by  Rivas, 
but  before  it  had  reached  Mexico,  the  Mexican  Congress  had 
passed  the  law  of  June  14,  1883,  prescribing  the  basis  for 
conversion  of  the  debt,  by  which  the  Executive  was  authorized 
to: 

1.  Fix  the  form,  condition  and  time  for  the  examination, 

recognition,  liquidation  and  conversion  of  the  debt. 

2.  Consolidate  the  total  debt  in  new  bonds  bearing  interest 

at  37r. 

3.  Whatever  the  origin  of  the  credits  and  the  nationality 

of  the  bondholders  the  whole  debt  was  to  preserve 
its  Mexican  quality  without  international  character, 


nor  should  special  revenues  be  assigned  for  the  pay- 
ment of  interest. 
The  prohibition  against  the  pledging  of  certain  revenues, 
together  with  certain  other  provisions  of  the  law  limited  the 
action  to  be  taken  to  that  of  conversion  only,  without  authoriz- 
ing an  additional  indebtedness,  and  served  to  discourage  fur- 
ther action  by  the  administration  in  power  until  Eduardo 
Noetzlin,  director  of  the  French-Egyptian  Bank,  arrived  in 
Mexico  to  consolidate  the  National  and  Mercantile  Banks  under 
the  name  of  the  National  Bank  of  Mexico. 

On  June  10,  1884,  a  new  contract  was  signed  providing 
for  the  issue  of  £16,500,000  with  interest  beginning  at  1% 
and  increasing  to  3%  after  the  fifth  year. 

This  contract,  like  the  preceding  one,  recognized  the  validity 
of  the  bonds  of  1851,  as  well  as  those  issued  in  1864  by  Max- 
imilian, with  interest  to  the  date  of  conversion.  An  amend- 
ment provided  for  £700,000  additional. 

As  soon  as  the  terms  of  this  contract  became  known  in 
Mexico  a  storm  of  opposition  arose.  The  rate  of  conversion 
was  exorbitant,  the  contract  contained  clauses  humiliating  to 
the  nation,  a  part  of  the  customs  revenues  was  pledged,  and 
the  amount  to  be  issued  was  in  excess  of  the  outstanding  debt 
authorized  by  law.  In  addition,  the  Maximilian  bonds  of  1864 
were  recognized  contrary  to  the  decision  of  Juarez. 

The  excess  issue  amounted  to  £2,952,000,  of  which 
£700,000  was  to  belong  to  the  government  to  pay  the  first 
interest  coupons  on  the  new  loan,  while  the  balance  £2,052,000 
was  to  go  to  Noetzlin  to  pay  the  expenses  and  commissions  of 
the  transaction. 

The  opposition  to  this  contract  became  practically  an  in- 
surrection, in  which  the  students  of  the  University  took  part, 
and  the  historian  cites  this  event  as  evidence  of  an  awakened 
national  conscience.  It  certainly  was  a  healthy  sign  that  the 
old  style  of  vicious  contracts  would  no  longer  be  tolerated. 

The  result  of  the  popular  opposition  was  that  the  settle- 
ment of  the  national  debt  was  postponed  until  after  Porfirio 
Diaz  had  been  inaugurated  for  his  second  term. 

The  Committee  of  Bondholders  was  notified  that  since  the 
contract  required  the  approval  of  Congress  during  its  first 
term,  which  had  terminated  without  action,  it  was  considered 
null  and  void. 

With  this  frank  and  explicit  statement,  says  Casasus,  the 
government  terminated  a  negotiation  which  had  not  only 
caused  more  than  disturbances  in  the  interior,  but,  as  always, 
dishonor  and  discredit   abroad. 

The  rejection  of  the  Rivas  and  Noetzlin  contracts,  added  to 
similar  previous  occurrences,  still  further  reduced  the  credit 
of  the  nation,  particularly  in  Great  Britain. 

There  is  no  doubt,  however,  in  view  of  the  condition  of 
the  country,  that  this  rejection  was  necessary,  and  the  act 

53 


indicates    the    beginning   of   a   new    and    more    business-like 
financial  policy  which  continued  throughout  Diaz'  regime. 

The  settlement  of  the  British  debt  was  finally  provided  for 
in  a  decree  issued  by  President  Diaz  on  June  22,  1885,  under 
authority  of  the  law  of  June  14,  1883. 

Before  discussing  the  law  it  may  be  well  to  quote  from  the 
message  sent  to  Congress  by  Manuel  Dublan,  Minister  of 
Finance,  which  shows  the  reasons  why  the  passage  of  this 
law  was  urged. 

"While  the  state  was  weighed  down  by  the  floating  and 
funded  debt,  without  a  plan  of  payment,  it  was  impossible  to 
re-establish  the  credit  of  the  nation  and  regularize  the  ad- 
ministration. 

"From  information  at  hand,  the  deficit  for  the  year,  which 
shortly  terminates,  will  be  more  than  P25,000,000.  If  this 
balance  should  be  carried  over  to  the  next  year  it  would  be 
impossible  to  provide  for  the  regular  needs  of  the  service. 

"The  executive  acknowledges  that  justice  is  on  the  side  of 
each  one  of  the  creditors  of  the  nation  in  demanding  payment 
of  his  claims,  but  between  the  duty  of  preserving  the  gov- 
ernment and  the  claims  of  the  creditors,  he  has  not  hesitated 
to  decide  which  of  these  two  interests  is  paramount. 

"Thus  it  is  that  the  President  of  the  Republic  confronted 
by  financial  difficulties  which  he  did  not  create,  counting  on 
the  patriotism  and  self-denial  of  public  officers,  believes  that 
the  remedy  for  our  difficulties  will  be  found  in  the  consolidation 
of  the  floating  debt  and  the  adoption  of  a  general  plan  of 
economy  by  making  a  prudent  and  proportional  reduction  in 
the  salaries  of  all  from  the  Supreme  Magistrate  to  employees 
drawing  a  salary  of  P500  per  annum. 

"The  government  does  not  repudiate  legitimate  obligations, 
it  only  postpones  their  settlement,  compelled  by  the  inevitable 
law  of  necessity.  To  overcome  the  difficulties  of  the  moment 
the  government  has  begun  to  introduce  administrative  econo- 
mies and  to  reduce  salaries  and,  in  view  of  the  justice  of  the 
claims  whose  payment  has  been  postponed,  it  has  fixed  a  rate 
of  interest  and  amortization  therefore,  and  has  entrusted  this 
service  to  the  National  Bank  of  Mexico. 

"The  above  measures  alone  are  not  enough  to  restore  our 
disordered  finances  to  their  natural  level,  but  they  will  un- 
doubtedly help  and  will  permit  regularity  of  payment  in  the 
future, 

"Convinced  of  this,  and  believing  that  without  the  settle- 
ment of  the  public  debt  a  renaissance  of  public  credit  cannot 
be  expected,  without  which  foreign  capital  so  necessary  for 
the  development  of  enterprises  in  the  country  will  not  have 
sufficient  confidence  to  come  and  animate  us,  the  President 
has  decided  to  exercise  the  powers  conferred  upon  him  by  the 
law  of  June  14,  1883." 

The  new  decree  was  dated  June  22,  1885,  and  provided  for 

54 


the  consolidation  of  all  the  debts  of  the  nation  incurred  up 
to  July  1,  1882.  It  specified  the  debts  which  would  be  recog- 
nized and  fixed  the  basis  for  conversion. 

Nineteen  different  bond  issues  or  other  documents  of  in- 
debtedness were  specified.  The  bonds  of  1851  were  to  be 
exchanged  at  par.  Interest  coupons  unpaid  from  July  1,  1854, 
as  well  as  other  unpaid  interest,  were  left  to  special  arrange- 
ments to  be  made  with  creditors. 

On  June  23,  1886,  an  agreement  was  signed  with  the  Com- 
mittee of  Bondholders  in  London  whereby  they  accepted  the 
following  conditions : 

1.  The   £4,864,800  37.   bonds  of  1864  to  he  exchanged  for 

new  3%  bonds  of  the  consolidated  debt  at  the  rate  of 
£100  of  old  bonds  with  all  coupons  attached  for  £50 
of  new  bonds. 

2.  Unpaid  interest  coupons  from  July  1,  1866,  to  July  1, 

1886,  amounting  to  £6,144,990  to  be  exchanged  for  new 
3%  bonds  of  the  consolidated  debt  at  the  rate  of  15%. 
The  agreement  further  provided  for  the  exchange  of  rem- 
nants of  prior  bond  issues  which  had  not  been  converted  in 
former  years. 

The  government  reserved  the  right  to  fix  the  date  for  the 
exchange  of  1851  bonds  for  the  new  37c  bonds,  provided  that 
the  exchange  was  effected  prior  to  December  31,  1890;  also, 
until  the  date  mentioned,  to  purchase  the  1851  bonds  or  the 
new  bonds  which  were  to  be  issued  at  the  market  price;  and, 
further,  to  redeem  both  classes  of  bonds  issued  at  40  7:  of  par. 
After  this  date  the  rate  was  to  be  increased  to  50%. 

The  new  37  consolidated  debt  bonds  were  authorized  by 
decree  of  January  29,  1886,  with  a  total  issue  of  P150,000,000, 
the  principal  of  the  bonds  to  be  accepted  at  par  by  the  govern- 
ment for  the  payment  of  land.  Coupons  were  made  legal 
tender  for  the  payment  of  taxes  up  to  57^  of  the  total  taxes 
collected.  Bonds  were  to  demonstrate  their  value  in  American, 
British  and  Mexican  money,  and  interest  was  to  be  paid  semi- 
annually, January  1st  and  July  1st  in  Mexico  City,  New  York 
or  London. 

In  view  of  the  provision  of  the  law  regarding  the  use  of 
equivalent  foreign  values  and  the  payment  of  interest  abroad, 
it  would  appear  that  the  provision  of  the  enabling  act  passed 
by  Congress  on  June  14,  1883,  specifying  that  this  loan  was 
to  be  purely  Mexican  without  any  international  character, 
was  not  fulfilled. 

In  the  actual  conversion  of  the  debt  the  1851  bonds  were 
not  exchanged  for  the  new  37^  bonds.  Apparently  some  un- 
derstanding existed  between  the  bondholders  and  the  govern- 
ment, or  the  government  found  it  expedient  to  settle  its  foreign 
debt  in  a  different  manner,  since  a  new  6%  loan  of  £10,500,000 
was  authorized  by  law  on  December  13,  1887,  the  proceeds  of 

55 


which  were  to  be  used  to  retire  the  British  debt  and  to  pay  off 
interest  bearing  floating  indebtedness. 

The  1864  bonds  and  unpaid  interest  coupons  were  converted 
into  the  new  3%  consolidated  debt  bonds  which  shortly  after- 
wards were  redeemed  with  the  proceeds  of  the  new  G'/r  issue 
of  1888. 

This  latter  loan  indicates  that  the  Mexicans  had  finally 
determined  to  break  loose  from  their  British  creditors,  who 
had  been  the  bankers  of  the  Mexican  Government  since  1823. 

The  synopsis  of  the  loan  is  as  follows: 

Syndicate  formed  by  Baron  Bleichroeder  of  Berlin. 
Title  Consolidated  Exterior  Mexican  Debt. 

Amount  £10,500,000. 

Interest  6^/( ,  first  coupon  July  1,  1888. 

Payments  1st  of  January,  April,  July  and  October. 

Amortization     One-half  of  one  percent,  (after  1893)  of  the 

par  value  of  bonds  issued. 
Purpose  To  pay  current  indebtedness  amounting  to 

about  P13,000,000. 
Redeem  1851  bonds  and  part  of  1886  bonds. 
Balance,  if  any,  for  public  works. 

Of  this  issue  £3,700,000  bonds  were  sold  to  Bleichroeder 
&  Company  at  709?,  funds  to  be  transferred  to  the  Mexican 
government  in  four  equal  parts  in  three,  four,  five  and  six 
months,  £55,000  to  be  retained  by  Bleichroeder  from  the  first 
and  third  credits  to  pay  the  first  and  second  coupons.  Bleich- 
roeder took  an  option  on  the  balance  of  the  loan  $6,800,000, 
at  86i/2/'f  >  with  the  right  to  pay  over  to  the  government  bonds 
with  interest  coupons  attached,  at  40^/f  of  their  par  value,  in 
accordance  with  the  agreement  with  the  bondholders. 

That  is,  £200,000  in  bonds  at  this  price  would  produce 
£173,000  in  cash,  for  which  Bleichroeder  agreed  to  turn  over 
to  the  government  old  bonds  amounting  to  £432,500. 

The  first  emission  was  sold  at  78I/2  by  the  bankers  and  was 
over-subscribed  twenty  times.  The  subscription  lists  in  Berlin 
were  open  fifteen  minutes,  while  in  London  they  closed  at  noon. 

What  caused  such  a  startling  reversal  of  all  previous  prac- 
tice? It  was  probably  due  to  the  clear  cut  business-like  deal- 
ing with  financial  matters,  instead  of  the  child-like  negotiations 
of  former  years,  a  well  defined  policy  regarding  the  use  of 
the  proceeds,  surplus  funds  in  Europe  seeking  investment  and 
clever  advertising  and  manipulation. 

The  last  conversion  of  the  British  debt  had  taken  place  in 
1863.  From  that  time  until  1886  no  payments  had  been  made 
on  account  of  interest  or  principal.  The  successive  steps  in 
the  new  operation  were  as  follows: 

r)6 


SUMMARY  OF  DEBT  DECEMBER  31,  1885. 

Principal:  ^  „  „ 

Bonds  issued  under  law  of  1851 £10,241,660-0-0 

Bonc'.s    issued    by    Maximilian,    1864 4,864,800-0-0 

Total - '■■ £15,106,450-0-0 

On  1851  bonds,  January  1,  1866,  to  December  31,  1885 £6,144,990-0-0 

On  1864  bonds  to  December  31,  1885 2,918,880-0-0 

Total - £9,063,870-0-0 

Total  debt  December  31,  1885 £24,170,520-0-0 

DEBT    RECOGNIZED    BY    BRITISH    AGREEMENT    JUNE    23,    1886. 

Pound  Sterling 

1851  bonds  at  par „ - £10,241,650-0-0 

1864  bonds  at  507r  of  par - 2,432,400-0-0 

Interest  on  1851  bonds,  £6,144,990,  at  15% 921,748-0-0 

Total  debt ,...- '. £13,595,798-0-0 

Interest  on   1864   Bonds   Not  Recognized. 

REDEEMED   FROM   PROCEEDS   OF   GERMAN  6%   LOAN   OF   1888. 

1851  bonds  at  40%,  £10,241,650 £4,096,660-0-0 

1864  bonds  at  40%,  £2,432,400 972,960-0-0 

Interest  on  1851  bonds,  £921,748-0-0,  at  40% 368,699-0-0 

Amount  realized  by  bondholders £5,438,319-0-0 

RECAPITULATION. 

Pound  Sterling 

Total  debt  December  31,  1885 £24,170,320-0-0 

Amount  ijaid  to  bondholders 5,438,319-0-0 

Loss £18,732,001-0-0 

The  figures  regarding  the  amount  of  bonds  redeemed  are 
not  exact,  since  a  small  number  were  not  presented  for  final' 
redemption. 

OTHER  BRITISH  INDEBTEDNESS 

To  avoid  confusion,  I  have  so  far  confined  myself  to  dis- 
cussing the  main  debt  which  is  popularly  known  as  the  British 
or  London  debt.  In  addition;  however,  various  other  outstand- 
ing obligations  were  recognized  and  converted  under  the  law 
of  June  22,  1885.  Such  obligations  consist  of  remnants  of 
old  bond  issues,  unconverted  certificates,  etc. 

The  statement  on  page  58  submitted  to  Congress  by  Min- 
ister Dublan,  gives  the  details  of  the  various  items  outstand- 
ing in  1888,  comprising  the  London  debt.  The  difference  be- 
tween the  total  of  the  debt  as  shown  in  this  statement  and 
that  shown  in  the  above  Summary  of  the  Debt  is  due  mainly 
to  the  omission  in  the  Dublan  statement  of  the  interest  on 
the  1864  bonds. 

NOTE  • — From  1823  to  IQO'i  the  Mexican  peso  was  worth  practically  the  same 
as  an  American  dollar.  In  1905  the  currency  system  was  reorganized  and  th^ 
villi''  )MS(.    lixi-d    at    aiii)roxiiaately    .")((    conts    i:.    S.    Currency.      To    avoid 

confusion  the  unit  value  of  the  peso  as  fixed  by  the  law  of  1905  Is  used  for 
transactions  during  the  period  from  1885  to  date — viz,  approximately  50  cents 
U.  S.  Currency. 

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58 


DIAZ  ADMINISTRATION 

1884  to  1911. 

Porfirio  Diaz  was  President  of  Mexico  from  1877  to  1880. 
General  Manuel  Gonzalez  was  elected  President  in  1880  and 
held  office  until  December  1,  1884,  when  Diaz  began  his  second 
term  as  President.  General  Diaz  was  President  from  Decem- 
ber 1,  1884,  until  May  25,  1911,  when  he  resigned  as  a  result 
of  the  Madero  Revolution. 

During  these  twenty-seven  and  a  half  years  Mexico  made 
her  greatest  advance  in  material  prosperity,  and  also  enjoyed 
the  longest  period  of  peace  in  her  history.  It  has  frequently 
been  said  that  her  prosperity  was  due  to  peace,  but  it  is  much 
more  probable  that  her  peace  was  due  to  her  prosperity.  The 
construction  of  railroads  was  the  largest  single  factor  in  her 
progress. 

During  this  period  Mexico's  public  debt  increased  about 
P375,000,000  net. 

Some  of  this  increase  in  the  public  debt  was  due  to  grants 
to  railroads  for  construction  purposes,  following  the  example 
of  the  United  States  in  the  early  days,  and  some  of  it  was  due 
to  the  sums  spent  in  the  construction  of  public  works. 

By  the  law  of  June  22,  1885,  and  the  agreement  with  the 
bondholders  of  June  23,  1886,  Mexico  fixed  the  public  debt  at 

£14,626,279,  as  reported  to  Congress  in  1888  by  Manuel  Dub- 
Ian,  then  Minister  of  Finance.  Under  the  terms  of  the  agree- 
ment the  government  reserved  the  right  to  purchase  the  above 
debt  at  40%  of  its  par  value,  which  it  did  in  1888.    Therefore, 

£5,850,511,  or  40%  of  the  total  debt  may  be  said  to  represent 
the  amount  of  the  foreign  indebtedness  of  Mexico  at  the  begin- 
ning of  the  second  Diaz  administration. 


INTERIOR  DEBT 

The  amount  of  the  interior  public  debt  at  the  time  Diaz 
assumed  office  in  1884  was  unknown.  The  law  of  June  22,  1885, 
provided  for  the  submission  of  claims,  created  the  machinery 
for  their  examination,  and  authorized  the  issuance  of  bonds  to 
pay  those  approved. 

The  first  interior  loan  was  authorized  by  the  decree  of 
June  22,  1885.  To  avoid  confusion  amortization  payments 
made  after  Diaz  resigned  are  included  in  the  figures  immedi- 
ately following,  as  such  amounts  do  not  noticeably  affect  the 
discussion.  Full  information  regarding  each  loan  mentioned  is 
contained  in  Appendix  B. 

59 


37f   CONSOLIDATED  INTERIOR  DEBT  OF  1886. 

Pesos 

Authorized   issue 150,000,000.00 

Amount  issued - 76,063,100.00 

Outstanding,  December  31,  1918 42,383,850.00 

Interest: 

1%  during  1886. 

1%%  during  1887. 

2%  during  1888. 

2%7r  during   1889. 

3%  during  1890  and  thereafter. 

Interest  was  to  be  paid  in  Mexico  City,  New  York  and  Lon- 
don, and  the  law  provides  that,  although,  interest  payments 
may  be  made  outside  of  Mexico,  and  the  bonds  are  stated  in 
,  foreign  currency,  the  debt  shall  not  be  deprived  of  its  essential 
internal  character.  The  bonds  were  made  admissible  in  pay- 
ment for  government  bonds  and  interest  coupons  were  made 
ad-Pissiblc  in  payment  of  Federal  taxes. 

Information  is  not  available  as  to  the  actual  disposition  of 
the  proceeds.  The  law  provided  that  these  bonds  were  to  be 
issued  in  exchange  for  19  different  kinds  of  indebtedness,  in- 
cluding the  British  debt. 

As  stated  on  page  55,  the  1851  bonds  were  not  exchanged 
for  bonds  of  this  issue.  The  bonds  of  1864,  together  with 
the  unpaid  interest  coupons  of  both  issues,  were  exchanged  in 
London  for  new  bonds  and  later  redeemed  in  cash  at  407^  of 
their  par  value.  Of  the  P76,063,100  issued,  P23,485,675  were 
redeemed  during  the  period  from  July  1,  1886,  to  June  30,  1890, 
and  it  is  probable  that  this  entire  amount  represented  the 
bonds  redeemed  with  the  proceeds  of  the  German  loan  of  1888. 

Deducting  the  amount  redeemed  from  the  total  amount 
issued  leaves  P52,577,425,  which  represents  the  amount  of 
bonds  issued  in  satisfaction  of  interior  debts. 

The  second  interior  loan,  authorized  September  6,  1894, 
provided  for  a  loan  of  P100,000,000  at  5^  per  annum. 

5 7c  Amortizable  Interior  Debt  of  1894 

Pesos 

Authorized  issue  1  OO.Ono  000.00 

Issued 98,579,000.00 

Outstanding,  Dec.  31,  1918 _ 92,911,700.00 

In  accordance  with  the  decree  of  September  6,  1894,  the 
following  bonds  were  issued: 

Date  of 
Authorization  Pesos 

Sept.  26,  1894 19.985,800.00 

Dec.    10,   1895 „ _ _ „ _ 20,000,000.00 

Jan.    3.    1898 20,000,000.00 

Dec.   23,   1899 „ „ „.... 20.000,000.00 

June  9,  1902 16,472,600.00 

Issued  during  1913  and  1914 „ 2,120,600.00 

Total   issue _ 98,579,000.00 

GO 


The  loan  was  authorized  for  the  purpose  of  completing  the 
consolidation  of  all  debts  of,  and  claims  against,  the  Republic 
which  originated  prior  to  June  30,  1882,  as  well  as  to  fund  the 
following  indebtedness  originating  from  that  date  to  June 
30,  1894. 

First  Class 

Due  railroad  companies  as  subsidiaries  for  new  construc- 
tion. 

Due  contractors  for  public  works. 

Due  railroads  for  freight  and  passenger  service. 

And  in  general,  amounts  due  for  loans,  mortgages,  con- 
tracts to  purchase  or  rent,  by  virtue  of  which  the 
government  was  obligated  to  pay  cash  and  the  pay- 
ment of  which  was  then  due,  as  well  as  vouchers  pay- 
able issued  by  the  Treasurer  General. 

Second  Class 

Amounts  due  for  salaries,  traveling  expenses,  pensions, 
gratuities,  honorariums,  etc.,  being,  in  general,  all 
credits  not  included  in  the  first  class. 

Special  Class 

Bonds  or  certificates  of  indebtedness  issued  after  June 
30,  1882,  and  issued  for  the  construction  of  railroads 
and  public  works. 
Interest 

Interest  payable  in  Mexico  City  and  London,  and  elsewhere 
if  designated  by  the  President.  Interest  coupons  are 
admissible  in  settlement  of  all  classes  of  payments 
which  may  be  made  directly  to  the  General  Treasury. 

The  authorization  for  the  issue  of  the  last  series  of  bonds 
was  enacted  in  the  form  of  a  law  which  provided  that  this 
issue  be  used  only  for  the  construction  of  railroads.  Additional 
authority  was  also  granted  to  the  President  to  issue  other 
bonds  to  enable  him  to  meet  the  cost  of  the  following  works: 

Pesos 
7,000,000     For  construction  of  Tehuantepec  Railroad. 
1,000,000     Capital  subscribed  to  above  Railroad  Company. 
"  Port  works  at  Saliha  Cruz  and  Coatzacoalcos. 

"  Port  works  at  Manzanillo. 

2,000,000     Buildings  and  works  at  Vera  Cruz. 

"  Construction  of  iron  wharf  at  Tampico. 

"  Construction  of  Legislative  Palace,  Mexico  City. 

"  Construction  of  water  supply  system  for  Mexico 

City. 

"  Payment  of  obligations  issued  for  sanitary  works 

in  Mexico  City. 

The  above  list  of  improvements  has  no  bearing  on  the 

disposition  of  the  second  interior  loan,  but  is  inserted  to  show 

that  the  Diaz  administration  had  prepared  a  program  of  public 

improvement.    Information  is  not  available  to  determine  what 

61 


portion  of  the  h'/,    P100,000,000  loan  was  used  for  the  con- 
struction of  railroads  and  public  improvements. 

State  Loans  Assumed  by  the  Federal  Government  of  Mexico. 

Since  the  Federal  Government  has  assumed  the  responsi- 
bility for  the  payment  of  their  principal  and  interest,  various 
state  loans  are  now  considered  to  be  part  of  the  interior  debt 
of  Mexico. 

Such   loans  outstanding  on  December  31,   1918,  were  as 

follows : 

of    Interest  Amount  Amount 

Issue    Rate  Title  Issued  Outstanding 

1901  5         State   of   Vera    Cruz P.  4,551,000.00  P.  831,200.00 

1902  5         State  of  Tamaulipas,  1st 

Series - 2,700,000.00  741,500.00 

1905  5         State   of   Sinaloa 698,000.00  466,700.00 

1906  5         State  of  Tamaulipas,  2nd 

Series  950,000.00  796,600.00 

1906  5  State  of  Vera  Cruz,  Im- 
provement of  Puerto 
Mexico    739,000.00  664,000.00 

Total    „ P.  9,638,000.00         P.  3,500,000.00 

Summary  of  Interior  Loans. 

'  Amount  Amount 

Title  Issued  Outstanding 

3%  Loan  of"l886::.~ - - P.  76,063,100.00  P.  42,383,850.00 

5%  Loan  of  1894 - 98,579,000.00  92,911,700.00 

State  Loan   9,638,000.00  3,500,000.00 

Total    - P.  184,280,100.00         P.  138,795,550.00 


EXTERIOR  OR  FOREIGN  LOANS 

A  number  of  foreign  loans  were  placed  abroad  by  the 
Mexican  government  in  the  period  from  1887  to  1910.  To 
give  a  clear  picture  of  the  gradual  growth  of  the  debt  it  is 
necessary  to  trace  each  loan  from  its  inception  to  its  final 
consolidation.  The  first  foreign  loan  of  the  Diaz  administra- 
tion has  been  referred  to  in  the  previous  chapter.  Further 
details  are  given  here. 

6%  CONSOLIDATED  EXTERIOR  MEXICAN  DEBT  OF  1888 

Pounds  Sterling 

Authorized  and   issued ~ £10,500,000-0-0 

Proceeds: 

£3,700,000-0-0  at  70 7f 2 ,590,000-0-0 

6,800,000-0-0  at  85% 5,780,000-0-0 

Total .« £8,370,000-0-0 

Less  \\i'7r  commission  on  £10,500,000-0-0 _ 131,250-0-0 

Net  proceeds £8,238,750-0-0 

The  above  figures  are  taken  from  Limantour's  report  to 
Congress  in  1910  on  the  subject  of  refunding  the  National 

62 


Debt.  They  do  not  agree  with  statements  in  other  reports, 
but  are  sufficiently  correct  for  our  purpose.  The  amounts  re- 
tained by  the  bankers  from  the  proceeds  of  the  loan  to  pay 
the  first  two  interest  coupons  are  not  taken  into  consideration. 
The  contract  with  the  syndicate  of  bankers  provided  that  the 
proceeds  of  the  loan  were  to  be  paid  over  to  the  Mexican  gov- 
ernment in  London  in  four  equal  parts  in  three,  four,  five  and 
six  months'  time. 

The  contract  further  provided  that  Bleichroeder  &  Com- 
pany should  pay  all  the  expenses  of  the  bond  issue  amounting 
to  £46,250-0-0,  to  be  deducted  by  them  from  the  proceeds  of 
the  loan.  This  amount  is  1147^  of  £3,700,000-0-0,  the  amount 
of  the  first  issue. 

A  deduction  of  I'^A'yr  from  the  second  issue  of  £6,800,- 
000-0-0  was  likewise  made,  presumably  as  commission. 

The  correspondence  between  the  two  contracting  parties 
was  as  follows: 


November  7,  1887 
November   8,  1887 

January  12,  1888 
March        10,  1888 

March        12,  1888 

March  17,  1888 
March  17,  1888 
March        18,  1888 

March  19,  1888 
March        24,  1888 


Bleichroeder  to  Government 

Request  commission  of  2%%. 
Government  to  Bleichroeder 

Other    conditions    satisfactory,    but    President    in- 
sists on  obtaining  70%  net. 
Government  to  Bleichroeder 

Impossible  to  allow  2i/^%  for  expenses. 
Financial   Agent  of  Government  in  London  to  Gov- 
ernment in  Mexico 

Bankers  propose  commission  of  2^/^%. 
Government  to  Financial  Agent 

Government  will   not   consider  proposed   modifica- 
tions  unless   bankers   state   explicitly   they   will 
accept  contract  if  modified. 
Blei<'broeder  to  Government 

If    acceptance    of    modifications    arrive    tomorrow 
will  immediately  sign  in  London, 
fo -ernmrrt  to  Financial  Agent 

Proposed  modifications  accepted,  except  the  2%% 
commission. 
Government  to  Financial  Agent 

If  those   gentlemen   are  agreeable  to   1%%   com- 
mission,  the   maximum   which   we  will  concede, 
sign   contract   immediately. 
Financial  Agent  to  Government 

Signed  today. 
Financial  Agent  to  Government 
Final    contract    signed- — expenses     amounting    to 
1^/4%  on  par  value  of  issue  allowed  bankers. 


Participaticn  of  Bankers 

This  loan  was  taken  as  follows: 

Per  Cent 

Bleichroeder  &   Company,  Berlin 61.584 

Anthony  Gibbs  &   Sons,  London 20.000 

National  Bank  of  Mexico -..     18.416 

Total  100.000 

63 


Profits  of  Bankers 

The  first  issue  of  bonds,  amounting  to  £3,700,000-0-0  was 
sold  at  781/2  and  the  profits  were  as  follows: 

Pounds  Sterling 

Commission  of  i\ii7<   on  £3,700,000-0-0 £4(5,250-0-0 

Profit  on  sale 314,500-0-0 

Total  profit £3(30,750-0-0 

The  bankers  also  received  li/i/r  commission  on  the  balance 
of  the  loan,  amounting  to  £85,000-0-0.  Information  is  not 
available  as  to  the  price  realized  by  the  bankers  on  the  second 
issue. 

Security  for  Loan 

As  a  special  guarantee  for  the  exact  compliance  with  the 
provisions  of  the  contract,  the  Mexican  government  assigned 
the  following  revenues: 

1.  20''/  of  all  import  and  export  duties. 

2.  The  total   proceeds  without   deduction   except  cost   of 

administration  of  the  "predial,  patante  and  profes- 
sional" taxes  collected  in  the  Federal  District. 

The  total  revenues  collected  under  the  foregoing  clauses 
were  always  to  exceed  the  amount  required  for  interest  and 
amortization  charges  by  at  least  lO'/r .  If  the  collection  fell 
below  this  amount  the  government  agreed  to  increase  the  per- 
centage of  the  customs  duties  in  favor  of  the  bondholders. 

The  government  agreed  to  leave  with  Bleichroeder  &  Com- 
pany, until  the  loan  was  repaid,  sufficient  funds  to  pay  two 
interest  coupons,  which  were  to  be  retained  from  the  pro- 
ceeds of  the  sale. 

Method  of  Separation  of  Revenues 

The  government  agreed  to  issue  customs  certificates  and  to 
pass  a  law  requiring  207r  of  all  customs  duties  to  be  paid  in 
such  certificates. 

Certificates  were  turned  over  to  the  National  Bank  of 
Mexico  for  the  account  of  bondholders,  and  this  bank  was 
charged  with  the  duty  of  placing  them  on  sale  at  the  various 
ports  of  entry. 

The  National  Bank  was  required  to  remit  the  amounts 
provided  for  in  the  contract  to  Bleichroeder  &  Company  not 
later  than  the  15th  day  of  February,  May,  August  and  Novem- 
ber of  each  year. 

Newspaper  Comment 

It  is  interesting  to  read  the  newspaper  comments  on  this 
loan,  the  first  since  the  Mexican  Imperial  Loan  of  November, 
1864. 

"  M(i>iil(.r  <l(    [iihiis(s  .Vdh  ri((li  s  ih    l\iris"  : 

"In  effect,  a  6^:^   loan  at  78i/>  is  what  is  sought  in  1888. 

f.4 


Exactly  24  years  ago  the  Empire  of  Mexico  was  worse  off  in 
the  matter  of  credit. 

"In  April,  1864,  Emperor  Maximilian  contracted  a  6% 
loan  with  Glyn  Mills  &  Company  amounting  to  8,000,000-0-0 
pounds  sterling.  The  price  was  63%,  and  to  assure  the  pur- 
chasers, the  Mexican  government,  in  addition  to  the  high  in- 
terest rate  of  10%,  offered  other  small  guarantees,  such  as  the 
appointment  of  a  Mexican  Financial  Commission  in  Paris  and 
later  the  deposit  of  sufficient  funds  to  pay  the  first  coupon  of 
July  1,  1864,  and  the  next  three  interest  coupons." 

"These  measures  did  not  prevent  the  Mexican  bonds  from 
being  quoted  at  56  before  the  July  coupon  was  due.  How  far 
we  have  come — today  a  Mexican  issue  not  at  10%  but  yielding 
7.05%  is  quoted  at  a  premium  above  the  original  selling  price." 

The  Bullionist,  March  31,  1888: 

"In  our  number  of  Saturday  we  announced  the  brilliant 
success  of  the  new  Mexican  loan,  and  we  understand  that  it 
has  advanced  in  price  in  Amsterdam  and  Berlin. 

"Two  causes  have  produced  this  result.  The  first  being  the 
influence  and  standing  of  the  bankers,  among  which  figure 
names  of  the  first  importance  in  the  three  great  centres  of 
financial  action  where  the  loan  was  placed.  The  second  cause  is 
the  prosperous  administration  of  President  Diaz  to  whom 
should  be  attributed  the  excellent  prospects  of  the  country.  In 
the  matter  of  mineral  riches  and  commercial  progress,  the 
actual  conditions  in  Mexico  are  better  than  they  have  been.  A 
new  era  has  dav/ned  in  Mexico  but  the  period  of  active  develop- 
ment we  think  will  be  determined  by  the  new  loan.  This  will 
affect  the  definite  arrangement  of  the  public  finances  and  must 
l)e  the  starting  point  for  all  that  concerns  the  welfare  of  that 
state." 

The  Baltimore  American  declared  that  the  period  of  revo- 
lutions had  passed  away  for  all  time  in  Mexico.  The  Baltimore 
Sun  expressed  the  opinion  that  Mexico  in  1888  was  not  the 
same  country  as  in  1883. 


Summary  of  Loan 

The  following  statement  is  taken  from  the  "Memoria  de 
Hacienda"  for  the  fiscal  year  1889-1890 : 

6%c  Loan  of  1888— £10,500,000-0-0. 

Pounds  Sterling- 
Par  value  of  loan £10,500,000-0-0 

Less    discount £2,130,000-0-0 

liess  expenses  83,051-0-0  2,213,051-0-0 


Net  proceeds „ £8,286,949-0-0 

65 


DISPOSAL  OF  PROCEEDS 

£14,450,000-0-0  bonds  of  English  debt  at  407r £5,780,000-0-0 

Deposited    with    Bleichroeder   for    interest _ ~ 315,000-0-0 

Bonds   of   Tehuantepec    Railway 195,278-0-0 

Cash,  used  to  retire  floating  debt 1,996,671-0-0 

Total  £8,286,949-0-0 

AMORTIZATION  ACCOUNT 

Pounds  Sterling 

Par    value    of    issue £  10.500,000-0-0 

Amortized   to  June   30,    1899 _ 517,200-0-0 

Balance  refunded   in   1899 £9,982,800-0-0 

57r  LOAN  OF  1899— £2,700,000-0-0. 

The  law  with  respect  to  this  loan  is  not  included  in  the  col- 
lection of  laws  and  other  documents  relating  to  the  public  debt 
compiled  by  Juan  Castillo,  published  in  Mexico  City  in  1903.  An 
extract  copy  of  the  law  dated  October  15,  1888,  secured  from 
the  Department  of  Finance,  approving  a  contract  for  the  con- 
struction of  the  Tehuantepec  Railroad  refers  to  this  loan. 

According  to  this  extract  the  bonds  were  issued  as  the 
purchase  price  for  the  railroad.  They  were  guaranteed  by  a 
first  mortgage  of  the  railroad  line,  equipment,  telegraph  line 
and  the  wharf  at  Salina  Cruz.  The  bonds  were  to  draw  interest 
from  the  first  of  January,  1889,  and  the  interest  was  to  be  paid 
by  the  railroad  contractor  for  the  first  21/2  years  during  the 
period  of  construction. 

The  government  agreed  to  deposit  the  entire  issue  of  the 
bonds  with  the  financial  agent  of  the  Mexican  government  in 
London,  and  to  turn  over  bonds  to  the  contractor  as  they  were 
earned.  The  bonds  were  to  be  amortized  in  fifty  years.  If 
construction  wers  not  comDleted  within  2V2  years  and  turned 
over  to  the  government,  the  contractor  was  required  to  pay 
the  interest  until  the  work  was  completed.  To  pay  amortiza- 
tion and  interest  charges  on  this  debt,  the  government  as- 
signed 509r  of  the  gross  revenues  of  the  railroad,  telegraph 
and  wharf;  if  such  507f  was  not  sufficient  to  pay  the  charges 
in  accordance  with  the  contract,  the  government  was  to  make 
un  the  difference. 

This  loan  was  refunded  in  1899,  and  the  state  of  the  debt 
at  the  time  of  the  consolidation  was  as  follows: 

Pounds  Ste^-Iing 

Par  value  of  issue £2,700,000-0-0 

Amortized  un  to  June  30.  1899 £27.000-0-0 

Balance  refunded   in   1899 2.673,000-0-0 


Totals £2,700,000-0-0  £2,700,000-0-0 

66 


6%  LOAN  OF  1890— £6,000,000-0-0. 

The  law  concerning-  this  loan  was  dated  May  14,  1890,  and 
authorized  the  Executive  to  consolidate  and  convert  the  credits 
in  favor  of  the  railroads  which  were  due  them  as  subventions. 
This  loan  was  placed  entirely  with  Bleichroeder  &  Company. 
One  of  the  preambles  of  the  contract  states  that  the  Executive 
has  resolved  to  consolidate  the  various  debts  of  the  country 
on  account  of  subventions  granted  to  the  railroads  by  means  of 
a  loan  of  £6,000,000-0-0  "which  amount  is  less  than  that  which 
is  owing  to  the  railroad,"  and  the  government  pledged  129c 
additional  of  all  import  and  export  customs  duties.  For  amor- 
tization purposes  the  government  agreed  to  pay  Vi.  of  1% 
annually  in  addition  to  the  6%  interest  on  the  total  amount 
of  bonds  issued.  After  the  interest  was  paid  on  the  bonds 
outstanding,  the  balance  of  the  fund  was  to  be  used  for  re- 
demption purposes  and  sufficient  funds  were  to  be  left  in  the 
hands  of  the  bankers  during  the  life  of  this  loan  to  pay  two 
interest  coupons. 

The  method  of  collection  was  the  same  as  for  the  6%  loan 
of  1888.  The  government  issued  customs  certificates  to  the 
National  Bank  of  Mexico  for  the  account  of  the  bondholders, 
and  this  bank  was  charged  with  the  duty  of  placing  these  cer- 
tificates on  sale  at  the  points  required. 

The  government  also  issued  a  decree  requiring  that  12% 
of  all  customs  duties  should  be  paid  in  these  certificates.  Bleich- 
roeder &  Company  took  these  bonds  at  83%%.  The  expenses 
of  issue  were  to  be  paid  by  Bleichroeder  &  Company  in  con- 
sideration of  1%  of  the  par  value  of  the  bonds  issued,  or 
£60,000-0-0,  which  the  bankers,  were  to  advance  to  the  gov- 
ernment, and  which  was  to  be  deducted  from  the  proceeds  of 
the  loan  in  four  equal  amounts.  This  loan  was  refunded  in 
1899.  Notwithstanding  the  language  of  the  law,  it  appears 
that  all  of  this  issue  was  not  used  entirely  for  the  purpose 
stated,  as  is  shown  by  the  following  statement : 

SUMMARY 

Pounds  Sterling 

Par  value  of  bonds £6  000,000-0-0 

Discount  of   1^47^ £675,000-0-0 

17c    commission 60,000-0-0  735,000-0-0 


Net  to  government £5,265,000-0-0 

USE  OF  PROCEEDS 

Payment  of  P.  23,082,212.30  owed  to  Central  and  Mexican 

Railway  made  with  P.  17,871,486  exchanged  at  P.  5  x  £ £3,574,297-0-0 

Balance   in   hands    of   the    government   for   miscellaneous 

payments 1,690,703-0-0 

Total _ £5,265,000-0-0 

67 


AMORTIZATION  ACCOUNT. 

Par  value  of  issue _ „ £6,000,000-0-0 

Amortized  up  to  June  30,  1899 £147,700-0-0 

Balance  refunded  in  1899 5,852,300-0-0 


Total £6,000,000-0-0  £6,000,000-0-0 

6%  LOAN  OF  1893— £3,000,000-0-0. 

This  loan  was  authorized  in  two  parts.  The  original 
authorization  was  dated  May  29,  1893,  and  provided  for  an 
issue  of  £2,500,000-0-0.  Later,  authority  was  granted  on 
November  29,  1893,  for  the  issuance  of  £500,000-0-0,  making 
a  total  of  £3,000,000-0-0. 

The  law  of  May  29th  authorized  the  Executive  to  take  all 
measures  necessary  to  complete  the  arrangement  of  the  public 
debt.  The  issuance  of  bonds  of  the  3%  Consolidated  Debt 
was  only  to  be  made  for  indebtedness  already  incurred,  and 
in  no  case  were  these  bonds  to  be  used  to  secure  new  loans. 
This  law  is  the  enabling  act  for  the  issuance  cf  P.  100,000,000 
5%  amortizable  interior  debt  issued  in  five  series,  and  also 
authorized  the  issuance  of  £2,500,000-0-0  to  be  placed  abroad. 

The  provision  of  the  law  relating  to  the  creation  of  this 
debt  is  as  follows: 

Lair  of  Majj  29.  18^— Art  id  <  8. 

"For  the  better  arrangement  of  the  floating  debt  and  to 
obtain  an  important  reduction  in  the  amounts  required  there- 
for, it  is  believed  convenient  to  consolidate  a  part  of  such  debt 
in  bonds  payable  outside  of  the  Republic,  the  emission  of  such 
new  bonds  not  to  exceed  £2,500,000-0-0,  and  to  be  issued  at 
the  best  price  that  can  be  obtained  with  conditions  and  other 
guarantees  necessary  which  shall  not  be  less  favorable  for 
the  State  than  those  granted  for  the  loans  of  1888  and  1889." 

The  report  of  the  Minister  of  Hacienda  for  1893  and  1894 
states  that  this  loan  was  necessary  on  account  of  the  loss  of 
crops  and  the  drop  in  the  price  of  silver. 

The  following  statement  prepared  by  the  Department  of 
Finance  of  the  Mexican  Government  shows  the  amounts 
realized  by  the  government  and  the  amounts  amortized  up  to 
the  date  of  consolidation: 


PROCEEDS 

Pounds  Sterling: 

£1,650.000-0-0  at  eO^r £990,000-0-0 

£950.000    at    67.323^; _ _ 639  573-0-0 

£400,000  at  74 V^  % 298,000-0-0 

Total _ _ _ _ _ „..  £1,927,573-0-0 

Less  1  V-i  %  commission _ _ 37,500-0-0 

Net  proceeds  £1,890,073-0-0 

68 


AMORTIZATION  ACCOUNT 

Par  value  of  issue £3,000,000-0-0 

Amortized  up  to  June  30,  1899 £50,580-0-0 

Balance  refunded   in   1899 2,949,420-0-0 


Total £3,000,000-0-0  £3,000,000-0-0 

5%  CONSOLIDATED  EXTERIOR  MEXICAN  DEBT  OF  1899. 

£22,700,000-0-0. 

CONVERSION  OF  1899. 

In  1899  the  four  exterior  loans  described  in  the  preceding 
pages  were  consolidated  in  a  new  5%  loan.  The  reasons  for 
this  loan  are  best  summarized  from  the  report  of  the  Minister 
of  Finance  to  Congress,  May  15,  1900: 

"Due  to  the  increasing  prosperity  of  the  nation  and  the 
good  results  which  we  are  beginning  to  obtain  in  the  finances 
of  the  Federal  Government,  the  value  of  the  securities  of  the 
public  debt  has  gradually  risen,  and  the  question  has  presented 
itself  in  financial  circles  and  those  interested  in  Mexican 
securities  as  to  the  possibility  of  reducing  the  annual  charge 
against  the  nation  for  debt  service. 

"The  securities  which  lend  themselves  to  conversion  are 
naturally  those  loans  of  1888,  1890  and  1893,  which  draw 
interest  at  the  rate  of  6%  and  are  superior  to  almost  all  other 
Mexican  securities.  The  bonds  of  1888  and  1890  have 
almost  always  been  quoted  at  the  same  price,  while  the  bonds 
of  1893,  whose  amortization  guarantees  and  other  conditions 
are  practically  the  same  as  the  other  two  loans,  have  been 
quoted  at  a  somewhat  inferior  price,  due  only  to  the  fact  that 
they  have  not  been  admitted  to  the  Berlin  Stock  Exchange. 

"In  addition  to  the  loans  mentioned,  there  exists  another 
loan  payable  in  Pounds  Sterling — that  issued  in  1899  for  the 
construction  of  the  National  Railways  of  Tehuantepec,  which 
is  secured  by  a  mortgage  on  the  property.  This  bears  interest 
at  5%  and  while  it  is  true  that  the  difference  in  the  interest 
should  result  in  a  lower  price  in  the  stock  market,  the  nature 
of  the  guarantee,  as  well  as  other  special  circumstances  con- 
nected with  the  loan  have  served  to  offset  a  large  part  of  this 
inferiority,  so  that  these  bonds  have  always  been  quoted  at  a 
higher  price,  mathematically  compared,  than  the  6%  loans." 

69 


COMPARATIVE    STATEMENT    SHOWING    THE    MARKET    QUOTA- 
TIONS OF  THE  BONDS  OF  1888,  1890,  1893  AND  TEHUANTEPEC 
IN   RELATION  TO  THE   REVENUES   FROM   CUSTOMS 
DUTIES  ON  IMPORTS. 


1894 


Fiscal  Year 

1893-94 

July    

August     

September  ... 

October    

November    ... 
December  

1895 

January    

February   

March  

April  

May    

June    

Fiscal  Year 

1894-95 

July     , 

August  

September  ... 

October    , 

November    ... 
December     ... 

1896 

January    

February   

March  .'. 

April  

May    

June    

Fiscal  Year 

1895-96 

July 

August  

September  ... 

October    

November    ... 
December  

1897 

January  

February   

March  

April  

May    

June    


Average  Quotation  for  Month 


Lioans 


1888  &  1890 


58  y* 

61% 

64 

65 

69  y2 

7iy4 

7iy2 

76% 
79% 

82 
86 

88  ys 


92 
92% 

95  y* 

94 
92 

90  yo 

90 

93  y4 

94 
94 
95 

95% 


94 

92% 

93% 

91% 

93 

95% 

96 

96  y2 

95% 
95  yz 
961/^ 

98  yo 


1893 


70  y2 

73 

74% 

77 

8iy2 

82% 


89 
89% 

92  y* 
91% 
89 

85  y2 

87 
91% 

9iy2 

93  yg 

94% 
9378 


92  U 

91  ¥2 

90% 

89% 

91 

91% 

94  y2 

95  Va 
92% 
941/4 
95 

96  y2 


Tehuantepec 


46  y2 

50  Vz 

52  y2 

52  y2 
56  y2 

60 
61 

67  y2 
67  y2 
67  y2 

70 

72  ys 


77 

79  ys 
8414 

86 
84 
81 

82  Vz 
84  ya 
86  y2 
86  y2 
86  y2 

87% 


86% 
84  ya 

83  y2 


Increase  or 

Decrease  as 

Compared  witli 

Same  Month 

Liast  Year 


87 

84  y2 
86% 

87  y2 

86% 
87% 
90 


+ 
+ 
+ 
+ 
+ 
+ 

+ 
+ 
+ 
+ 
+ 
+ 


+ 


35,584 

87,959 

104,486 

134,809 

36,074 

258,288 

340,228 
196,748 
435,097 
376,602 
520,850 
359,270 


389,583 
349  288 
368,388 
355,183 
524,379 
305,178 

386,145 
563.658 
2n6,918 
290.642 
54.507 
30,077 


45.733 
182,752 
191.508 
2,764 
226.012 
374,187 

79.192 
182  003 

82.163 
288,183 

61,654 
108,919 


Difference 

Between 
Kevenues  and 
Kxpenditurcs 

"'  Deficit 
1,340,415 


Surplus 
2,573,434 


Surplus 
5,451,347 


70 


1894 


Fiscal  Year 

1896-97 

July     _ 

August  

September  ... 

October    

November    ... 
December    ... 

1898 

January   

February     ... 

March     

April  

May    

June    

Fiscal  Year 

1897-98 

July    

August  

September  ... 

October    

November    .... 
December  

1899 

January    

February    , 

March  

April  

May     

June    

Fiscal  Year 

1898-99 


.\veiage  Quotation  for  Month 


Loans 


1888  &  1890 


1893 


98 

951/4 

94 

931/2 

931/2 

96 

9714 
98% 
98  lA 
93% 
95 
96  Va 


97  V2 
98 

98% 
971/2 
98 
991/2 

99% 
100% 
101% 
101% 
102% 
102% 


97% 

93% 

91  ¥2 

92 

92 

941/2 

95% 

98 

96% 

92% 

95  V2 

951/2 


96 

96% 

96% 

951/2 

96% 

97% 

99 
1001/2 
100 
101% 

102  y2 

100% 


Tehuantepec 


923/4 

91 

89% 

901/2 

891/2 

901/2 

91 

94% 

961/2 

921/2 

93 

941/2 


93 
94 
94 
94 
94 
95% 

96% 

98 

99 
100 
101 
102 


Increase  or 

Decrease  as 

Compared  with 

.Same  Month 

Last  Year 


+  271,746 


61,960 
268,269 
192,308 

71,623 
200,116 


+ 
+ 
+ 
+ 
+ 
+ 

+ 
+ 
+ 
+ 
+ 
+ 


352,574 
129,242 

45,538 
208,634 

95,451 
146,423 


69,557 
124,232 
431,843 
324,976 
506,535 
323,079 

601,796 
511.443 
257,167 
691,112 

598,495 
972,138 


Difference 

Between 

Revenues  and 

Expenditures 


Surplus 
3,170,123 


Surplus 
882,698 


Surplus 
6,639,670 

The  report  goes  on  to  say  that  "the  attached  statement 
clearly  shows  the  increasing  demand  for  Mexican  securities 
payable  in  gold  beginning  with  the  disastrous  financial  crisis 
from  1892  to  1894.  These  figures  are  a  clear  demonstration 
of  the  rapidity  and  firmness  with  which  the  nation  weathered 
the  terrible  economic  disturbances  which  occurred  in  that 
period.  As  soon  as  the  monthly  customs  revenues  began  to 
show  an  increase  over  the  same  months  of  the  preceding  year, 
confidence  was  reestablished  in  our  national  securities.  The 
increasing  price  of  the  Mexican  securities  was  practically 
parallel  with  the  increasing  receipts  of  the  customs. 

"Beginning  with  1897.  the  government  received  inquiries 
regarding  the  possibility  of  converting  the  6%  loans  for  others, 
which  would  draw  less  interest,  but  the  government  was  not 
at  liberty  to  make  such  a  conversion  on  account  of  the  clause 
in  the  three  contracts  for  1888,  1890  and  1893  loans  which 
required  that  these  loans  should  only  be  paid  off  by  a  regular 
amount  up  to  the  end  of  1897.  After  January  1,  1898,  how- 
ever, the  amortization  fund  might  be  enlarged  or  the  bonds 
might  be  entirely  paid  off.    After  January  1,  1898,  there  was 

71 


no  delay  in  presenting  various  propositions  signed  by  the 
best  firms  in  the  United  States,  London  and  Germany  which 
merited  serious  consideration.  The  group  of  houses  interested 
indicated  that  they  were  disposed  to  compete  with  the  offers 
which  would  be  received  from  the  signatories  for  the  three 
preceding  loans,  the  principal  being  S.  Bleichroeder,  of  Berlin. 
The  government  was  disposed  to  secure  the  benefit  of  this 
consideration,  but  before  negotiations  were  really  begun,  the 
Spanish-American  War  intervened  and  put  an  end  to  all  cor- 
respondence regarding  the  matter.  Some  time  after  the  con- 
clusion of  peace  between  the  belligerents,  the  conversion  of 
the  debt  was  again  taken  up.  But,  at  this  time,  the  house  of 
Bleichroeder  communicated  to  the  government  that  by  virtue 
of  arrangements  recently  made  with  the  other  houses  which 
Tiad  made  separate  propositions,  there  had  been  a  fusion  of 
the  two  groups  and  that  the  house  of  Bleichroeder  represented 
both  groups.  Negotiations  would  probably  have  been  begun 
had  it  not  been  for  the  fact  that  the  representative  in  Mexico 
of  that  firm  refused  to  accept  two  conditions  which  the  Exec- 
utive considered  as  a  sine  qua  non  for  any  arrangement: 

1.  "The  Executive  demanded  that  the  banks  renounce  in 
the  future  the  requirement  that  an  amount  sufficient  to 
pay  two  interest  coupons  should  remain  on  deposit  with 
the  bankers  during  the  whole  life  of  the  loan. 

2.  "The  Executive  a\so  required  that  the  guarantees  re- 
garding the  assignment  of  certain  revenues  collected  in 
the  Federal  District  be  suppressed." 

"Because  of  the  failure  to  come  to  an  agreement  regarding 
these  matters,  no  progress  was  made  until  April,  1899,  when 
a  commission  composed  of  representatives  of  banking  houses 
of  the  United  States  of  America  arrived,  and  indicated  that 
they  were  disposed  to  convert  the  debt  with  more  advantage- 
ous conditions  than  the  government  could  obtain  anywhere 
else." 

Limantour  states  that  at  this  time  it  was  necessary  for 
him  to  take  a  voyaire  to  Europe  on  account  of  his  health  and, 
while  passing  throucrh  New  York,  notwithstanding  the  fact 
that  he  was  only  in  the  city  for  one  week,  he  "was  approached 
by  the  directors  and  heads  of  the  various  institutions  and 
urged  to  agree  to  a  basis  for  conversion.  The  bankers  referred 
to  were  very  anxious  to  come  to  a  definite  agreement.  The 
propositions  which  they  presented,  aided  by  some  of  the  most 
powerful  names  in  the  United  States,  and  favored  by  the 
prosperous  conditions  which  surrounded  such  transactions  in 
that  country,  warranted  the  government  in  taking  them  into 
consideration  as  soon  as  they  oflfered  advantages  over  those 
other  propositions  which  had  been  an  object  of  preliminary 
negotiations. 

"Powerful  motives  prevented  the  consideration  of  these 

72 


propositions,  notwithstanding  the  fact  that  the  project  did  not 
arrive  at  the  point  of  being  discussed  in  its  essentials.  Elim- 
inating reasons  of  a  political  character,  the  following  con- 
siderations of  purely  a  financial  character  are  enough  to  justify 
this  attitude. 

"The  propositions  in  their  essential  points  were  attractive, 
but  they  also  had  serious  inconveniences. 

"The  propositions  of  the  American  bankers  were  to  sub- 
scribe to  a  new  Mexican  loan,  the  proceeds  of  which  were  to 
be  used  to  pay  off  the  old  loans  now  outstanding.  To  make 
the  conversion  they  proposed  an  exchange  of  creditors.  They 
did  not  offer  other  bonds  bearing  a  smaller  interest  to  the 
holders  of  the  bonds  of  1890  and  1893,  but  only  proposed  to 
substitute  new  creditors  in  a  new  world  for  the  present 
creditors  of  the  government  of  Mexico  in  the  old  world.  This 
could  not  be  accepted.  The  bonds  of  the  old  loans  were  in 
the  hands  of  a  public  familiar  with  matters  in  Mexico  and 
who  constitute  in  reality  a  clientele  whose  confidence  is  estab- 
lished in  the  strength  and  stability  of  the  said  loans. 

"These  reflections  appear  to  be  stronger,  if  we  take  into 
account  that  the  Mexican  6y<  bonds  have  been  quoted  in 
various  English,  German  and  Holland  markets,  which  had 
always  provided  an  ample  basis  to  sustain  our  bonds  and  had 
contributed  to  the  firmness  of  their  price.  While,  if  we  con- 
verted our  bonds  with  the  houses  referred  to,  we  would  have 
acquired  the  American  market;  but  this  advantage  evidently 
would  not  compensate  for  the  loss  of  the  others,  since  we 
would  have  to  depend  in  the  future  upon  the  houses  and  mar- 
kets of  one  single  country.  To  this  should  be  added  that 
there  is  a  plentiful  supply  of  money  in  the  United  States,  and 
in  consequence  it  anxiously  looks  for  investment,  which  fact 
is  very  favorable  for  the  conversion. 

"Neither  can  the  government  fail  to  take  into  account  the 
probable  consequences  of  breaking  with  the  large  banking 
houses  of  London  and  Berlin,  and  others  which  have  been 
associated  with  them  in  the  issuance  of  former  bond  issues. 
Although  it  should  not  be  feared  that  such  a  separation  will 
influence  the  pecuniary  result  because,  as  we  have  said,  the 
American  establishments  which  have  made  the  propositions 
are  sufliciently  strong  to  execute  them,  still,  the  possible  hos- 
tility of  those  European  houses  would  operate  without  fail 
against  the  success  of  the  conversion,  and  would  also  influence, 
in  an  unfavorable  manner,  other  pending  operations,  public,  as 
well  as  private,  which  are  connected  with  the  credit  of  the 
nation. 

"On  the  other  hand,  if  the  complete  transfer  of  our 
securities  from  Europe  to  the  United  States  presented  many 
serious  difliculties,  we  should  not  lose  sight  of  the  fact  that 
the  American  bankers  and  public  would  have  participated  in 
an  operation  conducted  in   Europe  without  Mexico  losing  a 

73 


single  one  of  the  markets  which  gave  support  to  its  bonds, 
nor  fail  to  conserve  the  old  clientele  for  these  securities. 

"For  these  reasons,  before  I  embarked  for  Europe  I  sought 
to  convince  the  persons  with  whom  I  had  been  dealing  that 
it  was  not  possible  to  accede  to  their  wishes,  and  that  the  only 
just  and  prudent  course  that  the  government  could  pursue 
under  the  circumstances  was  to  secure  the  offers  which  had 
been  made  by  them,  and  procure  the  amalgamation  of  the  two 
groups  if  the  European  group  submitted  proposals  which  were 
equivalent  to  those  made  in  the  United  States.  In  com- 
pensation, the  American  group  would  have  the  advantage  of 
participating  in  a  transaction  which  surely  would  have  a  great 
success,  and  if  the  government  did  not  obtain  a  favorable 
result  within  a  reasonable  time,  it  could  always  continue  the 
negotiations  in  New  York  on  the  basis  explained. 

"In  accordance  with  this  program,  when  the  heads  of  J.  P. 
Morgan,  of  New  York,  and  the  representatives  of  S.  Bleich- 
loeder.  the  Deutsche  Bank  and  the  Dresdener  Bank  of  Berlin, 
arrived  to  confer  with  me,  they  were  aware  of  the  fact  that 
the  government  could  complete  the  transaction  in  New  York 
on  satisfactory  terms.  In  this  way,  the  matter  of  the  con- 
version was  definitely  inaugurated  under  sufficiently  favor- 
able auspices,  not  only  on  account  of  the  circumstances  men- 
tioned, but  because  the  atmosphere  was  propitious  in  the 
European  and  American  markets  for  a  great  financial  under- 
taking. 

"In  the  preliminaries  regarding  the  conversion  which  were 
conducted  by  correspondence  and  conference,  the  three  loans 
of  1888,  1890  and  1893  were  the  only  ones  considered,  since 
these  were  contracted  for  on  terms  practically  the  same  and 
all  bore  interest  at  the  rate  of  6%. 

"The  government  had  determined  to  take  advantage  of  a 
favorable  opportunity  to  include  the  loan  of  £2,700,000-0-0 
of  the  National  Railways  of  Tehuantepec  in  the  conversion, 
but  this  idea  had  not  proved  feasible,  because  the  conditions 
surrounding  the  bonds  of  this  last  loan  were  different  from 
those  surrounding  the  6%  bonds. 

"The  Tehuantepec  bonds  had  not  yet  been  quoted  at  par; 
they  were  not  redeemable  at  the  option  of  the  government, 
which  only  had  the  right  to  double  the  amortization  fund;  the 
mortgage  back  of  the  bonds  was  considered  by  the  bondholders 
a  better  guarantee  than  the  revenues  of  the  custom  houses 
or  any  other  revenues  of  the  State.  It  was  not  possible, 
however,  for  matters  to  remain  in  this  condition  from  the 
time  that  the  government  entered  into  a  contract  to  complete 
the  railroad  of  Tehuantepec  and  to  construct,  in  Coatzacoalcos 
and  Salina  Cruz,  the  terminal  points  of  the  line  and  the  neces- 
sary port  works  to  perfect  this  interoceanic  line  of  communi- 
cation, because  a  project  as  large  as  this  could  not  be  brought 
to  a  conclusion  without  cancelling  the  mortgage  in  favor  of 
the  bondholders. 

74 


"It  was  in  regard  to  this  point  that  the  government  began 
to  study  the  methods  of  solving  the  difficulty.  The  first  tenta- 
tive proposals  for  this  purpose  were  made  to  the  Dresdener 
Bank,  which  was  the  one  in  union  with  others  that  placed  the 
Tehuantepec  bonds  in  circulation.  The  various  methods  to 
accomplish  this  purpose  were  discussed  for  two  years  without 
the  proposals  of  the  government  being  accepted  by  the  bank, 
or  the  proposals  of  the  bank  receiving  the  approval  of  the 
government.  The  failure  of  these  efforts  may  be  attributed 
to  the  fundamental  difficulties  of  the  problem  which  consisted 
of  inducing  the  holders  of  the  bonds  to  renounce  voluntarily 
and  unanimously  their  right  to  a  guarantee  which  was  better 
than  any  other  that  could  be  offered  by  the  government,  and 
to  exchange  their  rights  for  advantages  of  another  kind 
whose  valuG,  with  the  exception  of  the  pecuniary  compensa- 
tion, it  was  not  easy  to  demonstrate.  It  was  indispensable, 
therefore,  to  offer  a  substantial  premium  to  the  holders  of 
the  bonds,  and  even  if  this  were  done  it  was  not  certain  that 
they  would  all  submit. 

"The  year  1899  had  now  arrived  and  the  excitement  created 
in  other  countries  regarding  the  opening  of  a  canal  across  one 
of  the  isthmuses  of  the  American  continent  made  it  desirable 
to  hasten  the  conclusion  of  this  matter,  adopting  that  plan 
which  offered  the  most  security  and  which  would  raise  the 
mortgage  on  the  railroad.  As  we  have  said,  this  was  the  only 
obstacle  to  beginning  the  construction  of  the  new  work  under 
contract. 

"It  will  always  be  a  distinct  advantage  to  Mexico  in  the 
competition  which  some  day  will  exist  between  the  Maritime 
Canal  which  is  to  be  constructed  and  our  interoceanic  railroad, 
to  attract  the  largest  possible  traffic  before  the  canal  is  com- 
pleted so  that  we  can  have  the  necessary  time  to  prepare  for 
competition  under  favorable  conditions." 

The  report  of  Minister  of  Finance  Limantour  is  too  long 
to  be  given  in  full.  The  extracts  which  have  been  quoted 
serve  to  give  an  idea  of  the  conditions  which  made  it  desirable 
to  consolidate  the  debt. 

The  contract  for  the  loan  was  signed  on  July  1,  1899,  by 
the  following  firms,  whose  participation  in  the  loan  is  indicated 
opposite  their  names: 

Per  Cent 
S.    Bleichroeder   40.33587 

J.  P.  Morgan  &  Co.  in  London  and  J.  P.  Morgan  &  Co.  in  New 

Yorlv    26.89058 

Deutsche  Bank  13.44529 

Dresdener    Bank    13.13261 

National  Bank  of  Mexico 6.19565 


Total,  per  cent 100.00000 

75 


The  essential  facts  regarding  this  loan  are  as  follows: 

Authorized   Issue „ _ £22,700,000-0-0 

Proceeds: 

£1:5,000,000-0-0    at   96% _ 12,480,000-0-0 

!),700,000-0-0    at    97ViVc ~ 9,433,250-0-0 

Total  „ £21,913,250-0-0 

Less  commission  at  I'A 227,000-0-0 

Net  proceeds £21,686,250-0-0 

DISPOSITION  OF  PROCEEDS. 

6%.   1888  bonds £9,982,800-0-0 

5%   1889  bonds    Tehuantepec    Railroad 2,673,000-0-0 

6%  1890  bonds 5,852,300-0-0 

67c   1893  bonds     2,949,420-0-0 

1»^%  Premium  on  1888  bonds 149,742-0-0 

1%  Premium  on   1889  bonds  Tehuantepec  26,730-0-0 

11/2%  Premium  on  1890  bonds 87,784-0-0 

27c   Premium  on  1893  bonds    58,988-0-0 

Total £21,780,764-0-0 

The  difference  between  the  amount  secured  and  the  amount 
paid  out  was  probably  paid  from  revenues. 

Amortization 

The  government  agreed  to  pay  semi-annually  for  amortiza- 
tion purposes  a  fixed  sum  amounting  to  31/100  of  1%  of  the 
par  value  of  the  bonds  issued,  the  total  payment  being  5.62% 
each  year.  Bonds  were  to  be  redeemed  each  six  months. 
After  interest  had  been  paid  on  the  bonds  outstanding  at  the 
rate  of  57^  the  balance  of  the  fund  was  to  be  used  for  amortiza- 
tion purposes. 

Security 

For  the  payment  of  interest  and  amortization  charges,  the 
government  pledged  627^  of  the  total  import  and  export  duties 
of  the  nation.  The  collections  made  in  accordance  with  the 
above  stipulation  were  always  to  exceed  the  amount  required 
for  debt  service  charges  by  10^  •  If  collections  fell  below 
this  amount,  the  government  agreed  to  increase  the  percentage 
of  revenues  pledged  in  the  first  quarter  of  the  following  fiscal 
year. 

Method  of  Segregation  of  Revenues 

The  government  issued  a  decree  requiring  that  62%  of 
all  customs  duties  be  paid  with  customs  certificates  which 
were  issued  to  the  National  Bank  of  Mexico  to  be  placed  on 
sale  at  its  ports  of  entry. 

76 


5%   MUNICIPAL  LOAN  OF  1889— £2,400,000-0-0. 

This  loan  was  issued  by  the  City  of  Mexico  and  the  pay- 
ment of  the  principal  and  interest  was  assumed  by  the  Federal 
Government  on  July  1,  1903,  in  accordance  with  the  terms 
of  the  law  transferring  the  collection  of  taxes  in  the  City  of 
Mexico  to  the  Federal  Government. 

This  loan  is  still  outstanding.  Full  details  are  contained 
in  the  statement  of  the  loan  in  Appendix  B. 

7%  LOAN  OF  1892— £600,000-0-0. 

No  law  appears  to  have  been  passed  authorizing  this  loan. 
The  contract  is  dated  August  1,  1892,  This  loan  has  been 
repaid. 

The  National  Bank  of  Mexico  for  itself  and  in  represen- 
tation of  the  various  banks  and  banking  houses  in  Berlin, 
London  and  Paris  agreed  to  lend  £600,000-0-0  to  the  govern- 
ment to  be  repaid  in  eight  equal  installments  of  £75,000-0-0 
each  on  the  first  day  of  December,  March,  June  and  September. 
A  commission  of  21/?%  was  allowed  the  bankers  and  10%  of 
the  customs  duties  was  pledged  as  security  for  the  payment 
of  interest  and  amortization  charges. 

The  purpose  of  the  loan  was  to  raise  funds  to  pay  off 
the  floating  debt  in  London. 

4%  LOAN  OF  1904— $40,000,000.00. 
DUE  DECEMBER  1,  1954. 

This  loan  was  authorized  on  November  24,  1904,  for  the 
following  purposes: 

1.  Payment  of  Treasury  obligations  issued  June  1,  1903, 

$12,500,000.00. 

2.  Payment  of  Treasury  obligations  issued  June  1,  1904, 

$6,000,000.00. 

3.  Payment  of  Special  Certificates  issued  under  the  law 

of  December  3,   1903,  $9,213,500.00. 

4.  Payment  of  6%  bonds,  payable  in  Mexican  currency, 

issued  as  subventions  to  the  Mexican  Southern  Rail- 
way and  the  Vera  Cruz  &  Pacific  Railway, 
$5,909,500.00. 

5.  Balance   to  be  applied  to   the  construction   of  public 

works  at  Salina  Cruz,  Coalzacoalcos  and  Manzanillo. 

The  bonds  were  to  be  amortized  with  the  proceeds  of  semi- 
annual payments  of  $930,000.00  after  interest  on  outstanding 
bonds  was  provided  for.  No  special  revenues  were  pledged 
or  other  security  granted. 

77 


This  loan  was  sold  to — 

Speyer  &  Company,  New  York; 

Speyer  Brothers,  London ; 

Lazard  Speyer-Ellison,  of  Frankfort; 

Deutsche  Bank,  of  Berlin; 

Teixeira  de  Mattos  Brothers,  of  Amsterdam ; 

Banco  Nacional  de  Mexico, 


and  is  still  outstanding 
4%  LOAN  OF  1910—- 


fFrs.  560,550,000.00. 
£22,200,000-0-0. 
$107,670,000.00. 
P.  216,450,000.00. 


The  original  contract  for  the  loan  was  executed  in  the 
French  language  and  is  dated  July  2,  1910.  The  signatories, 
with  the  participation  of  each,  are  as  follows: 

Per  Cent. 
S.  Bleichroeder,  Deutsche  Bank,  Dresdener  Bank,  Mor- 
gan, Grenfell  &  Co.,  J.  P.  Morgan  &  Co 42.50 

Banco  Nacional  de  Mexico 15.00 

La  Banque  de  Paris  et  des  Pays  Bas 12,75 

Le  Credit  Lyonnais 10.20 

La  Societe  Generale 10.20 

La  Comptoir  National  D'Eseompte  de  Paris 9.35 


Total 100.00 

The  syndicate  purchased  one-half  of  the  amount  author- 
ized at  94%%  and  took  an  option  on  the  balance  at  the  same 
price.  Due  to  the  Madero  revolution  in  1910-1911,  the  option 
was  not  exercised. 

The  purpose  of  this  loan  was  to  refund  the  5%  loan  of 
1899  of  £22,700,000-0-0,  of  which  £20,778,740-0-0  was  out- 
standing at  the  time.  The  security  granted  was  the  same  as  for 
the  5%  loan  of  1899, — viz.  62%  of  all  import  and  export  taxes. 
During  such  time  as  the  loan  of  1899  was  not  refunded,  the 
revenues  were  to  be  collected  by  the  Banco  Nacional  de  Mexico 
through  the  use  of  customs  certificates. 

After  the  loan  referred  to  had  been  redeemed,  the  use  of 
customs  certificates  was  to  be  discontinued,  and  all  customs 
ofl^cers  were  to  be  required  to  remit  62%  of  their  collections 
to  the  Banco  Nacional. 

Amortization 

The  loan  was  to  be  repaid  before  January  1,  1945.  The 
government  agreed  to  pay  semi-annually  to  the  Banco  Nacional 
for  interest  and  amortization  purposes  2.685%  of  the  bonds 
authorized  or  5.37%  per  annum. 

78 


As  the  interest  rate  was  4%,  the  rate  of  amortization  was 
the  highest  of  any  loan  so  far  placed  by  Mexico. 

Since  the  1899  loan  was  only  one-half  redeemed,  the  pledge 
of  62%  of  the  customs  duties  runs  jointly  for  both  issues. 

OTHER  LOANS 

A  study  of  annual  reports  of  the  Mexican  government 
shows  that  the  government  issued  at  various  times  short  time 
securities,  and  also  frequently  borrowed  from  the  Banco 
Nacional  on  open  account. 

As  all  such  loans  are  reflected  in  the  ones  discussed,  it  is 
not  necessary  to  go  into  detail  regarding  them. 

RECAPITULATION  OF  LOANS  ISSUED  EXCLUDING  REFUNDING 

LOANS 

Title.  Amount  issued 
3%  Consolidated    Interior    Debt    of    1885 

less  amount  redeemed  with  1888  loan  P.  52,577,425.00 

5%  Amortizable    Interior    Debt    of    1894  96,458,400.00 

State  Loans  assumed - _._. 9,638,000.00 

6%  Consolidated  Exterior  Mexican  Debt 

of    1888    portion    representing    new 

debt   only £.3,700,000-0-0  37,000,000.00 

5%  Tehuantepec  Loan  of  1889 2,700,000-0-0  27,000,000.00 

5%  Loan  of  1890 6,000,000-0-0  60,000,000.00 

67o  Loan  of  1893 3,000,000-0-0  30,000,000.00 

5%  Municipal    Loan    of    1889 2,400,000-0-0  24,000,000.00 

7%   Loan    of    1892 600,000-0-0  6,000,000.00 

47f   Loan  of  1904 $40,000,000.00  80,000,000.00 

Total    P.  422,673,825.00 

For  convenience  the  pound  sterling  is  reduced  to  pesos  at 
the  rate  of  PIO  for  1  pound  and  the  dollar  at  2  for  1. 

The  amount  stated  above  represents  new  bonds  issued.  The 
difference  between  this  and  the  amount  of  P375,000,000.  pre- 
viously referred  to  as  the  new  debt  is  due  to  amortization 
payments. 

PRODUCTIVE  WORKS 

Data  is  not  available  to  show  the  disposition  of  the  pro- 
ceeds of  the  various  government  loans.  Fernando  Gonzalez 
Roa  in  his  book  "El  Problema  Ferrocarrilero,"  published  in 
1915,  states  that  up  to  June  30,  1902,  the  government  had  paid 
out  in  subsidies  to  railroads  the  amount  of  P144,891,743.92. 

As  the  4%  loan  of  1904  amounting  to  P80,000,000.  was 
issued  after  the  date  referred  to  by  him,  and  was  issued  for 
the  payment  of  notes  given  as  subsidies  to  railroads  and  for 
public  works,  it  is  probable  that  this  amount  should  be  added 
to  the  total  stated  by  Sr.  Roa. 

It  is  reasonably  certain  that  the  37r  loan  of  1885  was  used 
to  consolidate  the  floating  debt.     What  portion   of  the  5% 

79 


interior  loan  of  1894  was  used  to  pay  floating  indebtedness,  and 
what  portion  was  used  for  public  works,  is  not  known, 

A  statement  issued  on  June  30,  1S96,  by  the  Bureau  of  the 
Public  Debt  of  Mexico  shows  claims  recognized  and  subject  to 
settlement  in  1894  bonds  as  amounting  to  P2,352,661.82.  This 
loan  was  issued  in  five  series,  and  the  decree  authorizing  each 
of  the  four  first  issues  provides  that  the  bonds  shall  be  used 
to  consolidate  the  debt  and  to  pay  subsidies  to  railroads  and 
for  the  construction  of  public  works.  The  decree  authorizing 
the  last  issue  of  P20, 000,000.  provided  that  the  total  amount 
was  to  be  used  for  paying  subsidies  to  railroads. 

From  these  various  statements  we  may  arrive  at  the  fol- 
lowing approximation  as  to  the  disposition  of  the  larger  part 
of  the  bonds  issued : 

For  consolidation  of  the  floating  debt: 

3%   Loan  of  1885 P.  52,577,425.00 

5%   Loan  of  1894 2,352,661.82 

Total    - P.  54,930,086.82 

Debts  assumed  by  the  Government: 

5%  Municipal  Loan  of  1889 - P.  24,000,000.00 

State  Loans  _ 9,638,000.00 

Total    P.  33,638,000.00- 

Construction  of  Railways: 

Amount  expended  up  to  1902  per  Gonzales  Roa P.  144,891,743.92 

5th  Series  of  5%  Loan  of  1894 20,000,000.00 

47f  American  Loan  of  1904 80,000,000.00^ 

Total P.  244,891,743.92 

Balance   not   segregated P.  89,213,994.26 

Total P.  422,673,825.00' 

With  a  view  to  ascertaining  the  eff"ect  of  these  large  ex- 
penditures upon  the  national  revenues,  the  following  figures 
are  presented,  taken  from  a  graphic  chart  published  by  the 
Department  of  Finance  in   1918. 


Total  Revenues  of  Government 


Fiscal  Year  Amount 

1883-1884 P.  37,521,065.29 


1884-1885 

1885-1886 

1886-1887 

1887-1888 

1888-1889 

1889-1890 

1890-1891 

1891-1892 

1892-1893 

1893-1894 

1894-1895 

1895-1896 

1896-1897 


30,660,434.24 
28,980,895.76 
.32,126,509.07 
40,962,045.23 
54,801,924.58 
61,908,681.53 
44,142,856.61 
.39,993.743.94 
38,654,770.31 
41,216,893.51 
46,907,123.16 
51,240,066.95 
52,105,285.59 


Amount 
.  P.  53,288,061.53 
60,633,391.67 
64,675,098.45 
63,283,196.17 
66,774,380.15 
76,620,598.98 
87,002,728.79 
92,666,445.61 

1905-1906 102.752,751.40 

1906-1907 115,027,009.4a 

1907-1908 - 111,810,934.11 

1908-1909 98,775,510.79 

1909-1910 106,328,485.10' 


Fiscal  Year 

1897-1898 

1898-1899 

1899-1900 

1900-1901 -. 

1901-1902 

1902-1903 

1903-1904 

1904-1905 


80 


It  cannot  be  doubted  that  the  industrial  development  of 
the  country  was  very  greatly  facilitated  by  improved  means 
of  transportation,  and  that  national  revenues,  to  a  certain 
extent,  reflected  this  prosperity. 

1911  to  1918. 

On  September  16,  1910,  Mexico  celebrated  the  centennial 
of  its  declaration  of  independence  and  visitors  from  all  over 
the  world,  representatives  of  foreign  governments  and  native 
Mexicans,  flocked  to  Mexico  City  for  the  biggest  fiesta  in  its 
history. 

On  May  25,  1911,  the  man  who  had  ruled  the  country  for 
30  years  and  who  a  few  months  before  had  been  the  recipient 
of  congratulations  from  practically  the  entire  world,  resigned 
the  office  of  President  and  fled  to  France. 

The  Madero  Revolution  which  unseated  him  was  a  peaceful 
one.  Francisco  Madero  entered  Mexico  City  on  July  7,  1911, 
called  a  special  election  for  President  and  was  elected  and  in- 
augurated on  November  1,  1911. 

On  February  8,  1913,  a  revolution  against  the  Madero  gov- 
ernment headed  by  Felix  Diaz  and  General  Reyes  broke  out 
in  Mexico  City.  Victoriano  Huerta,  commanding  general  for 
Madero,  came  to  some  agreement  with  Diaz,  and  President 
Madero  and  Vice-President  Pino  Suarez  were  arrested  on 
February  18,  1913.  Congress  appointed  as  President  Pedro 
Lascurain,  who  appointed  Huerta  to  the  Cabinet  and  then  re- 
signed after  having  acted  as  President  45  minutes.  His 
resignation  automatically  made  Huerta  President.  On  Feb- 
ruary 22nd  Francisco  Madero  and  Pino  Suarez  were  killed 
under  circumstances  which  strongly  indicated  foul  play. 

FINANCIAL  CONDITION  WHEN  MADERO  CAME  TO 

OFFICE 

The  annual  report  of  the  Treasury  for  the  fiscal  year  July 
1  1910  to  June  30,  1911,  shows  cash  on  hand  and  in  bank 
amounting  to  P72,000,000. 

It  is  difficult  to  obtain  accurate  information  regardmg 
financial  transactions  for  the  period  from  1911  to  1917,  but 
it  appears  that  the  Madero  government  issued  two  short  term 
loans  which  were  repaid  with  the  proceeds  of  the  6%  Treasury 

notes  of  1913.  .         -,  •      a      m    .^-.o     i. 

The  report  on  the  public  debt  issued  m  April,  1913,  shows 
a  414  Cc  loan  of  $10,000,000.00  due  June  10,  1913,  which  has 
since  iDeen  paid  off. 

HUERTA  ADMINISTRATION 

Victoriano  Huerta  was  President  of  Mexico  from  February 
19,  1913,  to  July  15,  1914. 

81 


During  this  period  a  series  of  loans  were  authorized  of 
which  it  appears  that  two  were  issued,  as  follows : 

6%  10  year  Treasury  Bonds  of  1913 £20,000,000-0-0 

6%  10  Year  Treasury  Bonds  of  1914 P60,000,000.00 

Of  the  first  loan    £6,000,000-0-0  was  sold  at  home  and 
abroad  to  the  following: 

Mexican   Group:  Per   Cent 

1  Banco  Nacional  de  Mexico 5.000 

French    Grouj)    45.125 

2  Banque  de  Paris  et  de  Fays  Bas. 
Societe  Generale  pour  I'Developement. 
Comptoir  National  d'Escompte. 
Banque  de  I'Union  Parisienne. 
Morgan  Harjes  &  Co. 

A  Spitzer  &  Co. 

German  Group 19.000 

3  S.  Bleichroeder. 
Deutsche  Bank. 
D.esdener  Bank. 

English  Group  19.000 

4  Morgan  Grenfell  &  Co. 

American   Group   11.875 

5  J.  P.  Morgan  &  Co. 
Kuhn  Loeb  &  Co. 

It  appears  that  the  following  amounts  were  taken  by  the 
National  Banks  of  Mexico : 

Pounds  Sterling  Pesos 

Second    Issue £2,171,495-0-0  18,000,000 

Third  Issue 239,935-0-0  1,988,460 

Fifth   Issue  307,692-0-0  2,550,000 

Eighth    Issue    - 4,685,731-0-0  41,117,299 

Total   £7,404,853-0-0        P.  63,655,759 

The  following  amounts  appear  to  have  been  issued  to  guar- 
antee the  payment  of  interest  on  railroad  bonds: 

Fourth   Issue   £595,580-0-0  P.  5,806,905.00 

Seventh   Issue 365,470-0-0  3,563,332.50 

Ninth   Issue 400,000-0-0  3,900,000.00 

Total    „ £1,361,050-0-0  P.  13,270,237.50 

The  6th  issue  amounting  to  £3.175,580-0-0,  equivalent  to 
P30,961,905.00,  was  paid  to  John  W.  DeKay  as  the  purchase 
price  of  the  Mexican  National  Packing  Company,  and  as  an 
advance  to  Mr.  DeKay  to  purchase  munitions  of  war  in  Europe. 
Of  the  total  amount  issued  to  him,  it  is  said  that  P10,000,000. 
was  for  the  purchase  of  the  Packing  Company  and  the  balance 
was  for  the  purchase  of  arms. 

82 


SUMMARY  OF  6%  LOAN  OF  1913. 

Sold    abroad    £6,000,000-0-0 

Deposited  with  National  Banks  as  collateral  for  loans 7,404,853-0-0 

Deposited  as  guarantee  of  railroad  interest ._ 1,361,050-0-0 

John    W.    DeKay 3,175,580-0-0 


Total  _ _ £17,941,483-0-0 

Of  the  second  loan  of  1914,  the  following  amounts  appear 
to  have  been  issued: 

To  guarantee  interest  on  railroad  bonds P.  11,500,000.00 

To  guarantee  circulation  of  Carbajal  bonds 9,216,329.00 

Total    : P.  20,716,329.00 

The  information  available  regarding  the  disposition  of 
these  two  loans  is  far  from  satisfactory,  and  no  information 
can  be  secured  as  to  whether  the  balance  of  the  bond  issues 
are  on  hand  or  have  been  disposed  of. 

The  present  Mexican  government  is  not  disposed  to  recog- 
nize the  validity  of  all  these  issues.  Regarding  that  portion 
uf  the  loan  sold  abroad,  General  Carranza,  then  First  Chief  of 
the  Constitutionalist  Army,  notified  foreign  governments  that 
any  loan  placed  with  the  Huerta  government  was  illegal  and 
would  not  be  recognized.  However,  of  the  total  amount  sold 
abroad,  it  is  understood  that  the  Huerta  government  realized 
about  50  millions  of  pesos.  With  this  amount  it  paid  off  in- 
debtedness incurred  by  Madero  amounting  to  about  42  millions, 
so  that  Huerta  probably  did  not  receive  more  than  8  or  9  mil- 
lions of  pesos. 

The  present  government  likewise  took  the  position  that  the 
action  of  the  National  Banks,  in  purchasing  Huerta  bonds,  was 
illegal,  because  they  placed  themselves  in  active  opposition  to 
the  constitutional  government.  What  disposition  DeKay  made 
of  his  bonds  is  not  known. 

It  would  appear  unlikely  that  the  Mexican  government  will 
assume  the  payment  of  all  the  indebtedness  created  by  Huerta. 

CARRANZA  REGIME 

President  Carranza's  forces  finally  entered  Mexico  City  on 
August  2,  1915,  and  beginning  with  October  the  various  de- 
partments of  government  were  transferred  from  Vera  Cruz  to 
Mexico  City. 

A  constitutional  convention  was  held  in  Queretaro  from 
December  1,  1916,  to  about  January  31,  1917,  and  a  new  con- 
stitution adopted  which  became  effective  May  1,  1917.  An 
election  for  President  was  called  in  April,  1917,  and  General 
Carranza  was  elected  and  inaugurated  as  President  on  May 
2,  1917. 

83 


The  revolution  against  Huerta  and  for  the  restoration  of 
Constitutional  Government  conducted  by  General  Carranza 
was  financed  almost  entirely  by  the  issuance  of  fiat  currency, 
together  with  the  normal  revenues  of  the  country  occupied  by 
the  Constitutionalist  forces. 

Fiat  currency  is  usually  referred  to  in  Mexico  as  a  debt  of 
the  Nation,  and  President  Carranza  in  his  message  to  Congress 
on  April  15,  1917,  speaking  of  the  Debt  of  the  Revolution,  re- 
fers to  it  as  follows: 

"Infalsificable  paper  currency  in  circulation,  if  it  were  re- 
deemed at  the  rate  of  P0.20  gold— P80,000,000." 

On  the  basis  of  redemption  specified,  this  indicates  that  the 
amount  of  Infalsificable  paper  currency  outstanding  was  P400,- 
000,000.  From  information  secured  in  Mexico,  it  is  believed 
that  the  amount  outstanding  on  June  30,  1917,  was  about 
P300.000,000,  which  is  being  redeemed  at  the  rate  of  P60,- 
000,000.  per  annum  through  taxation. 

Fiat  currency  outstanding  is  not  included  as  a  debt  of  the 
Nation  in  this  report. 

Loans  from  Banks 

Beginning  with  November,  1916,  the  Constitutionalist  gov- 
ernment borrowed  funds  from  the  National  Banks.  The  amount 
due  on  November  28,  1918,  according  to  a  statement  furnished 
by  the  Monetary  Commission  was  P53,155,733.95. 

Vera  Cruz  Bonds,  1917 — No  Interest 

These  bonds  were  issued  to  redeem  the  so-called  Vera  Cruz 
Paper  Currency.     Details  are  given  in  Appendix  B. 

CONCLUSION 

The  outlook  for  the  future  of  Mexico  is  bright.  Law  and 
order  are  being  re-established,  commerce  is  improving,  and  if 
financial  aid  is  granted  to  restore  communication  and  credit 
facilities,  the  next  few  years  should  be  the  most  prosperous 
in  her  history. 

As  an  earnest  of  the  future  of  Mexico,  so  far  as  lies  in  the 
power  of  the  present  administration,  the  following  excerpt 
from  President  Carranza's  message  to  Congress  is  quoted: 

"A  revolution  that  is  not  prompted  by  a  necessity,  the 
satisfaction  of  which  does  not  admit  extension  of  time,  and 
which  does  not  aspire  to  vitalize  an  ideal  of  morality  and 
justice,  is  merely  a  crime  against  the  existence  of  a  people. 

"The  first  requisite  for  the  existence  of  a  state  is  order. 
Order  cannot  prevail  where  there  is  no  law,  or  where  the  law 
is  violated  constantly  and  with  impunity.  It  is  law  which  de- 
termines the  relations  among  the  members  of  a  nation  and 
serves  as  the  intervening  medium  between  these  members. 

84 


Law  fixes  the  sphere  of  free  action  to  be  exercised  by  indi- 
viduals and  the  limits  within  which  public  authority  must  act 
so  that  social  functions  may  not' encounter  obstacles  in  their 
multiple  and  legitimate  manifestations.  In  a  state  where  a 
man  feels  himself  strong,  simply  because  he  is  armed  and  be- 
lieves himself  able  to  impose  his  will  over  others,  where  there 
is  no  respect  for  life,  liberty  or  property  of  the  other  members 
of  the  social  body,  there  can  be  neither  rights  nor  morality, 
which  are  the  main  elements  of  order.  Within  a  state  where 
any  representative  of  authority  considers  himself  capacitated 
to  act  as  he  elects  without  a  brake  to  control  his  bursts  of 
anger,  without  a  sentiment  impelling  him  to  realize  that  there 
are  others  who  deserve  respect— and  it  is  precisely  for  the 
purpose  of  compelling  the  stubborn  to  respect  others  and  in- 
spire ideas  of  right  to  the  obstinate  and  refractory  that  public 
authority  is  necessary — in  such  a  state,  I  repeat,  c^n  exist 
only  anarchy,  which  is  the  disordered  tyranny  of  the  many; 
or  despotism,  which  is  the  tyranny  of  only  one." 


MEXICAN   NATIONAL   DEBT 

STATEMENT  OP  b%   ENGLISH   LOAN   OP  1823  COVERING 

PERIOD  FROM  JANUARY,  1824,  TO  APRIL,  1831 


65,400-0-0 
217,200-0-0 


198,400-0-0 
279,100-0-0 


162,200-0-0 
107,200-0-0 


35,967-10-0 
33,487-10-0 
29,998-16-0 

27,971-06-0 

26,631-05-0 
26,635-12-06 
26,635-12-06 
26,635-12-06 
26,635-12-06 


£2,130,500-0-0 


£399,468-15-0 
£896,182-10-0 


1824 
1824 
1824 


1824 
1824 
1824 

1826 
1825 
1825 
1826 
1826 
1825 
1826 
1825 
1824 
1825 
1826 
1826 
1826 
1826 
1826 


1826 
1827 
1827 
1827 
1827 
1828 


1830 
1830 
1830 
1831 
1831 


£3,200,000-0-0 


Interest  accrued  and  paid- 
Amortized  

Balance 

Interest  accrued  and  paid- 
Interest  accrued  and  paid— 

Amortized  

Balance   

Interest  accrued  and  paid- 
Interest  accrued  and  paid- 
Amortized  — . 

Balance   

Interest  accrued  and  paid- 
Amortized  

Balance    ..— 

Interest  accrued  and  paid- 
Amortized  — 

Balance — 

Interest  accrued  and  paid- 
Amortized  

Balance   

Interest  accrued  and  paid- 
Amortized  

Balance  — 


33,487-10-0 
29,998-15-0 


26,631- 


26,635. 
26.635 
26,635. 
26,631 
26,631 
26,631 
26.631- 
26,631- 
26,631- 
26,631- 
26,631 
26,631 
26,631 
26,631 
26.631 
26,631 
26.631 
26,631 


£3,200,000-0-0    £896.182-10-0 


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EXHIBIT   6 
MEXICAN  NATIONAL  DEBT 


6','r   to  &7o  bonds  at  112% 


3,443,420-12-6 

...Principal     4,096,170-  0-0 

Interest     1,195,766-11-0 


6,291,936-11-0 
512,021-05-0 


£9,247,378-08-6 


Total  issued  divided  as  follows: 
^4  with  5%  interest  from  date. 


•i  with  deferred  interest  at  5%  from  October  1,  1847- 


MEXICAN   NATIONAL   DEBT 

ENGLISH  LOAN 

CONVERSION   OP   1843 


Debit 

Credit 

Frincipal 

Interest 

Principal 

Interest 

£96,310-00-0 
167,978-06-0 
27,113-12-6 

18?8 
1838 
1839 
1839 
1839 
1939 
1840 
1840 

1841 
1841 

1842 
1842 
1843 
1843 

4-1 
10-1 

4-1 
10-1 
11-12 
11-12 

4-1 
10-1 

4-1 
10-1 

12-1 

4-1 
10-1 

4-1 
10-1 

Palan'^o  ^ir-^'icht  forward 

£4,623,689-04-3 
4,623,689-04-3 

M;  total  debt  bearing  5%  interest  from  date 

%  total  debt  with  interest  at  5%  from  October  1,  1847 — 

116,592-04-7 

116,692-04-7 

Interest  accrued  6  months 

Custom  House  Certificates  sold _ _. - 

116,692-04-7 

Tntcrct  nccrncd  6  month- 

Custom  House  Certificates  sold 

Interest  accrued  6  months 

Interest  accrued  6  months 

116,592-04-7 

£290  401-17-6 
17,736-12-6 

N  t              t        d-t  -1  t     ■  t        t 

272.666-06-0 
43,949-05-6 

Cash  from  Custom  Houses  at  Santa  Ana  and  Vera  Cruz 

316  616-10-6 
116,692-04-7 
116.692-04-7 
116,592-04-7 
116.692-04-7 
608.122-06-2 

115,692-04-7 

115,692-04-7 

Intercut  accrued  and  nnid 

Interest  accrued  and  naid 

115,592-04-7 

fn.247.37R-08-6 

?1 .387.106-15-0 

£9.247,378-08-6 

£1,387,106-15-0 

DEBT  AS  RECOGNIZED  BY  GOVERNMENT: 

Active  Bonds  bearing  6%  interest . 

Deferred  Bonds  bearing  5%  interest— 


6,500,000-00-0 

91,650-00-0 

4,624,000-00-0 

499,096-00-0 


Increase   in  debt 


£859,246-05-4 


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95 


EXHIBIT  10— Continued 

MEXICAN  NATIONAL  DEBT 

ENGLISH  LOAN 

CONVERSION  OF  1886 

TOTAL  DEBT  1  Pound  Sterling 

Principal  of  debt _ ,.  £15,106,450-0-0 

Balance  of  unpaid  interest .„...       8,986,218-4-6 


Total     _ £24,092,668-4-6 


AMOUNT  OF  DEBT  AS  AGREED   UPON  BY  GOVERNMENT  AND 
BONDHOLDERS 

Sr,  bonds  of  1851  at  par _ ]  £10,241,650-0-0 

^7c  bonds  of  1864  at  50% 2,432,400-0-0 

921,748-0-0 


Unpaid  interest  on  1851  bonds  at  15%.. 
Total  debt  .._ „ 


REDEMPTION  OF  DEBT  UNDER  AGREEMENT 

£10,241,650-0-0  3%  bonds  of  1851  at  40% 

2,432,400-0-0  3%  bonds  of  1864  at  40% 

921,748-0-0  unpaid   interest  at  40% 


Total  amount  paid  to  bondholders.. 


SUMMARY 


Total  debt  January  1,  1886 

Amount  paid  to  bondholders  from  proceeds  of  6% 
loan  of  1888 

Amount  waived  by  mutual  agreement 


£13,595,798-0-0 


£4,096,660-0-0 
972,960-0-0 
368,699-4-0 


£5,438,319-4-0 


£24,092,668-4-6 
5,438,319-4-0 


£18,654,349-0-6 


Note — from  1863  to  1866  the  Mexican  Government  apparently  paid 
£77,651-15-6  more  than  was  due  on  account  of  interest.  This  amount 
was  not  taken  into  consideration  when  the  final  settlement  was  made. 


<»6 


EXHIBIT  11 

UNITED    STATES   OF   MEXICO 

SUMMARY  OF  PUBLIC  DEBT 

Pound  Sterling  24.5841  for  P.   1— Francs  505  for  P    195— 
Dollars  .4984  for  P.  1 


Title 


Amount         Accrued 
Outstanding     Interest  to 
Dec.  31,  1918  Dec.  31, 1918 


3%  Consolidated  Interior  Debt 

of  1886  

5%  Interior   Debt   of   1894 

5%  Municipal  Loan  of  1899... 
5%  Consolidated  Debt  of  1899 
5%  State  of  Vera  Cruz,  1901 
5%   State  of  Tamaulipos,  1902 

4%  Gold   Loan  of   1904 

5%   State  of  Sinaloa,   1906 

5%  State  of  Tamaulipos,  1906 
5%  State  of  Vera   Cruz,  1906  i 

4%   Gold   Loan   of   1910 , 

6%  Treasury    Notes   of   1913...  I 
6%   Treasury    Notes   of    1914... 

Vera  Cruz  Bonds,   1917 | 

Vera    Cruz    Bonds    await-  i 

ing   issue  

Bank    Loans   

Due    employees    for    part  I 

salaries    j 

Interest       on       Railroad  ; 

Bonds  guaranteed  

Interest  on  Bonds  of  Caja 
de  Prestamos,  guaran- 
teed   .'. 


P. 42, 383, 8.50 

92,911,700 

13,525,816 

97,206,828 

831,200 

741,500 

74,312,800 

466,700 

796,600 

664,000 

101,898,806 

166,387,901 

21,241,176 

2,942,885 

582,685 
53,155,734 

25,000,000 


P.695,050,181 


P.  6,357,577 

23,227,925 

3,381,454 

23,086,619 

207,800 

185,375 

14,862,560 

116,675 

199,150 

166,000 

20,379,761 

54,908,000 

5,735,117 


Total 


3,300,000 


9,134,743 
5,643,661 


P.  170.892.417 


P.  48,741,427 

116,139,625 

16,907,270 

120,293,447 

1,039,000 

926,875 

89,175,360 

583,375 

995,750 

830,000 

122,278,567 

221,295,901 

26,976,293 

2,942,885 

582,685 
56,455,734 

25,000,000 

9,134,743 

5,643,661 
F.  865,942,598 


97 


•    EXHIBIT   12 
3%  CONSOLIDATED  INTERIOR  DEBT  1886 
PRINCIPAL 

Authorized    issue   „ 


Issued  - 

Amortized  to  February  28,  1913.. 


March  1,  1913,  bonds  outstanding  per  last  report. 
Amortized    since    


December  31,   1918,  balance   outstanding-.. 


INTEREST 


July 

1st, 

1914 

Coupon 

57 

P.  635,757.75 

January 

1st, 

1915 

Coupon 

58 

635,757.75 

July 

1st, 

1915 

Coupon 

59 

635,757.75 

January 

1st, 

1916 

Coupon 

60 

635,757.75 

July 

1st, 

1916 

Coupon 

61 

6.35,757.75 

January 

1st, 

1917 

Coupon 

62 

635,757.75 

July 

1st, 

1917 

Coupon 

63 

635,757.75 

January 

1st, 

1918 

Coupon 

64 

635,757.75 

July 

1st, 

1918 

Coupon 

65 

635,757.75 

January 

1st,  1919         Coupon 
Total    Interest    

66 

635,757.75 

P.  150,000,000.00 


76,063,100.00 
33,338,125.00 

P.  42,724,975.00 
341,125.00 

P.  42,383,850.00 


P.  6,357,577.50 


December  31,  1918,  Total  Debt P.  48,741,427.50 


AMORTIZATION 

Principal  of  bonds  and  unpaid  coupons  are  admissible  in  payment  for 
national  land.  Interest  coupons  also  legal  tender  in  payment  of 
Federal  taxes  up  to  5%  of  total  taxes  collected. 


98 


EXHIBIT  13 

5%  INTERIOR  DEBT   1894 

PRINCIPAL 

Authorized    issue 

Issued  to  February  28,  1918 

Amortized  to  March  3,   1913 

March  4,  1913,  bonds  outstanding  per  last  report- 
September    3,  1913,  bonds  issued 

March  3,  1914,  bonds  issued 

September    3,  1914,  bonds  issued 

Amortized  since  March  4,  1913 

December  31,  1918,  balance  outstanding 


INTEREST 

April 

1st, 

1914 

Coupon  38 

P.  2,322,792.50 

October 

1st, 

1914 

Coupon  39 

2,322,792.50 

April 

1st, 

1915 

Coupon  40 

2,322,792.50 

October 

1st, 

1915 

Coupon  41 

2,322,792.50 

April 

1st, 

1916 

Coupon  42 

2,322792.50 

October 

1st, 

1916 

Coupon  43 

2,322,792.50 

April 

1st, 

1917 

Coupon  44 

2,322,792.50 

October 

1st, 

1917 

Coupon  45 

2,322.792.50 

April 

1st, 

1918 

Coupon  46 

2,322,792.50 

October 

1st,  1918 
Total     

Coupon  47 

2,322,792.50 

December  31,  1918,  Total  Debt., 


P.  100,000,000.00 


96,458,400,00 
5,410,900.00 

P.  91,047,500.00 

142,500.00 

1,318,100.00 

660,000.00 

P.  93,168,100.00 
256,400.00 

P.  92,911,700.00 


P.  23,227,925.00 
P.  116,139,625.00 


AMORTIZATION 

By  progressive  method — Government  to  pay  over  2%%  of  total  bonds 
issued  each  six  months.  After  interest  is  paid  on  bonds  outstanding, 
the  balance  of  fund  to  be  used  to  retire  bonds  at  par.  Bonds  called 
for  retirement  by  drawings.  Coupons  admissible  in  payment  of  any 
indebtedness  at  National  Treasury. 


99 


EXHIBIT  14 

5%  MUNICIPAL  LOAN  OF  1899 
DUE  JANUARY  1,  1919 

PRINCIPAL 


Authorized   issue i     £2,400,000-0-0 


Issued _ 

Amortized  to  December  13,  1912., 


December  12,  1912,  bonds  outstanding  per  last  report- 
Amortized  since „ 


December   31,    1918.. 


December  31,  1918,  Total  Debt. 


£2,400,000-0-0 
942,500-0-0 

£1,457,500-0-0 
72,000-0-0 


INTEREST 

April 

1st, 

1914 

Coupon 

101 

£17,318-15 

June 

1st, 

1914 

Coupon 

102 

17,318-15 

October 

1st, 

1914 

Coupon 

103 

17,318-15 

January 

1st, 

1915 

Coupon 

104 

17,318-15 

April 

1st, 

1915 

Coupon 

105 

17,318-15 

June 

1st 

1915 

Coupon 

106 

17,318-15 

October 

1st, 

1915 

Coupon 

107 

17,315-15 

January 

1st 

1916 

Coupon 

108 

17,318-15 

April 

1st 

1916 

Coupon 

109 

17,318-15 

June 

1st, 

1916 

Coupon 

110 

17,318-15 

October 

1st 

1916 

Coupon 

111 

17,318-15 

January 

1st 

1917 

Coupon 

112 

17,318-15 

April 

1st 

1917 

Coupon 

113 

17,318-15 

June 

1st 

1917 

Coupon 

114 

17,318-15 

October 

1st 

1917 

Coupon 

115 

17,318-15 

January 

1st 

1918 

Coupon 

116 

17,318-15 

April 

1st 

1918 

Coupon 

117 

17,318-15 

June 

1st 

1918 

Coupon 

118 

17,318-15 

October 

1st 

1918 

Coupon 

119 

17,318-15 

January 

1st 
Tota 

1919         Coupon 
1    Interest    

120 

17,318-15 

£1,385,500-0-0 


£346,375-0-0 


£1,731,875-0-0 


Ky 


AMORTIZATION 

progressive  method — Government  to  pay  69^  on  total  bonds  issued. 
After  interest  at  57f  is  paid  on  bonds  outstanding,  the  balance  of 
fund  to  be  used  to  retire  bonds.  Bonds  to  be  called  for  retirement  by 
semi-annual  drawings. 


100 


EXHIBIT  15 

5%  CONSOLIDATED  DEBT  1899 
DUE  1945 


PRINCIPAL 


Authorized    Issue 


Amortized  to  December  11,  1912.. 


£22,700,000-00 

22,700,000-00 
12,601,980-00 


December  11,  1912,  Bonds  Outstanding  per  last  report £10,098,020-00 


Amortized    since 

December  31,   1918,  Balance  Outstanding.. 


INTEREST 


July 

1st, 

1914 

October 

1st, 

1914         i 

January 

1st, 

1915 

April 

1st, 

1915 

June 

1st, 

1915 

October 

1st, 

1915 

January 

1st, 

1916 

April 

1st, 

1916 

June 

1st, 

1916 

October 

1st, 

1916 

January 

1st, 

1917 

April 

1st, 

1917 

June 

1st, 

1917 

October 

1st, 

1917 

January 

1st, 

1918 

April 

1st, 

1918 

June 

1st, 

1918 

October 

1st, 

1918 

January 

1st, 

1919 

Total 

Interest 

Coupon  58 
CoupHjn  59 
Coupon  60 
Coupon  61 
Coupon  62 
Coupon  63 
Coupon  64 
Coupon  65 
Coupon  66 
Coupon  67 
Coupon  68 
Coupon  69 
Coupon  70 
Coupon  71 
Coupon  72 
Coupon  73 
Coupon  74 
Coupon  75 
Coupon  76 


£124,465- 
124,465- 
124,465- 
124,465- 
124,465- 
124,465- 
124,465- 
124,465- 
124,465 
124,465 
124,465 
124,465 
124,465 
124.465 
124,465 
124,465 
124,465 
124,465 
124,465 


15-0 
15-0 
15-0 
15-0 
15-0 
15-0 
-15-0 
-15-0 
-15-0 
-15-0 
-15-0 
-15-0 
-15-0 
-15-0 
-15-0 
-15-0 
-15-0 
-15-0 
-15-0 


December  31,  1918,  Total  Debt.. 


140,760-00 


£  9,957,260-00 


£2,364,849-05 


12,322,109-05 


AMORTIZATION 

By  progressive  method — Government  to  pay  5.627o  on  total  bonds  issued. 
After  interest  at  5%  is  paid  on  bonds  outstanding,  the  balance  of  the 
fund  to  be  used  to  redeem  bonds.  Bonds  to  be  redeemed  to  be  selected 
by  semi-annual  drav^^ings  if  bonds  were  selling  at  par  value  or  over. 
If  bonds  were  selling  at  less  than  par  value,  they  were  to  be  pur- 
chased at  their  market  price.  One-half  of  this  bond  issue  was  re- 
deemed with  the  proceeds  of  this  4%   1910  loan. 

Note: — The  report  issued  by  the  Mexican  Government  in  1913  states  that 
the  rate  of  amortization  on  the  balance  of  this  loan  not  refunded  in 
1910  is  .5733  of  1  per  cent. 

101 


EXHIBIT  16 


k^^j  t 


S%  BONDS  STATE  OF  VERA  CRUZ  1901 
NO  DUE  DATE 


PRINCIPAL 

Authorized  Issue 

Issued  _ _.„ 

Amortized  to  March  4,   1913 _.„ 

March  5,  1913,  Bonds  Outstanding  per  last  report.. 
Amortized  since _  . 


P.  5,000,000.00 

4,551,000.00 
3,375,000.00 


December  31,  1918,  Balance  Outstanding. 

INTEREST 

March 

31st, 

1914 

Coupon  48     P. 

10,390.00 

June 

30th, 

1914 

Coupon  49 

10,390.00 

September 

30th, 

1914 

Coupon  50 

10.390.00 

December 

31st, 

1914 

Coupon  51 

10,390.00 

March 

31st, 

1915 

Coupon  52 

10,390.00 

June 

30th, 

1915 

Coupon  53 

10,390.00 

September 

30th, 

1915 

Coupon  54 

10,390.00 

December 

31st, 

1915 

Coupon  55 

10,390.00 

March 

31st, 

1916 

Coupon  56 

10,390.00 

June 

30th, 

1916 

Coupon  57 

10,390.00 

September 

30th, 

1916 

Coupon  58 

10,390.00 

December 

31st, 

1916 

Coupon  59 

10,390.00             1 

March 

3l3t, 

1917 

Coupon  60 

10,390.00 

June 

30th, 

1917 

Coupon  61 

10,390.00 

September 

30th, 

1917 

Coupon  62 

10,390.00 

December 

31st, 

1917 

Coupon  63 

10,390.00 

March 

31st, 

1918 

Coupon  64 

10,390.00 

June 

30th, 

1918 

Coupon  65 

10,390.00 

September 

30th, 

1918 

Coupon  66 

10,390.00 

December 

31st,  1918 
tal  Interest  .. 

Coupon  67 

10,390.00 

To 

1,176,000.00 
344,800.00 

831,200.00 


December   31,   1918,   Total   Debt. 


P.      207,800.00 
P.  1,039,000.00 


AMORTIZATION 

Amortization  fund  to  consist  of  27c  additional  customs  duties  collected  at 
the  Port  of  Vera  Cruz. 


102 


EXHIBIT  17 

5%  BONDS  STATE  OF  TAMAULIPAS  1902 
FIRST  SERIES 

PRINCIPAL 


Authorized  Issue 


Issued    - - - 

Amortized  to  December  4,  1913.. 


March  5,  1913,  Bonds  Outstanding  per  last  report- 
Amortized  since  » - — - 


December  31,  1918,  Balance  Outstanding.. 


INTEREST 


April 

July 

October 

January 

April 

July 

October 

January 

April 

July 

October 

January 

April 

July 

October 

January 

April 

July 

October 

January 


1st,  1914 
1st,  1914 
1st,  1914 
1st,  1915 
1st,  1915 
1st,  1915 
1st,  1915 
1st,  1916 
1st,  1916 
1st,  1916 
1st,  1916 
1st,  1917 
1st,  1917 
1st,  1917 
1st,  1917 
1st,  1918 
1st,  1918 
1st,  1918 
1st,  1918 
1st,  1919 


Coupon  43 
Coupon  44 
Coupon  45 
Coupon  46 
Coupon  47 
Coupon  48 
Coupon  49 
Coupon  50 
Coupon  51 
Coupon  52 
Coupon  53 
Coupon  54 
Coupon  55 
Coupon  56 
Coupon  57 
Coupon  58 
Coupon  59 
Coupon  60 
Coupon  61 
Coupon  62 


P.  9,268.75 
9,268.75 
9,268.75 
9,268.75 
9,268.75 
9,268.75 
9,268.75 
9,268.75 
9,268.75 
9,268.75 
9,268.75 
9,268.75 
9,268.75 
9,268.75 
9.268.75 
9,268.75 
9,268.75 
9,268.75 
9,268.75 
9,268.75 


Total  Interest 


December  31,  1918,  Total  Debt.. 


P.  2,700,000.00 

2,700,000.00 
1,800,500.00 

P.   899,500.00 
158,000.00 

P.   741,500.00 


185,375.00 


P.   926,875.00 


AMORTIZATION 

Amortization  fund  to  consist  of  2%  additional  customs  duties  collec- 
tion at  the  Fort  of  Tampico  together  with  pesos  30,000  per  an- 
num from  municipal  water  taxes. 


103 


EXHIBIT  18 


4%   GOLD   LOAN 

OF   1904 

DUE    1954 

PRINCIPAL 

4iithnri7Pf 

Iss 

ue    

i 

$40,000,000.00 

Issued    

40,000,000.00 

Amortized 

up 
29, 

to  November,   1912 

1912,  Bonds  Outstanding  per  last  report 

2,505,500.00 

November 

$37,494,500.00 

A  mnrtiyprl 

sin( 
31,  1 

IQ 

457,000.00 

^^lllyj L  ifl/^cu 

918,  Balance  Outstanding 



December 

■  $37,037,500.00 

INTEREST 

June 

1st, 

1914 

Coupon  19 

^740,750.00 

December 

1st, 

1914 

Coupon  20 

740,750.00 

June 

1st, 

1915 

Coupon  21, 

740,750.00 

December 

1st, 

1915 

Coupon  22 

740,750.00 

June 

1st, 

1916 

Coupon  23 

740,750.00 

December 

1st, 

1916 

Coupon  24 

740,750.00 

June 

1st, 

1917 

Coupon  25 

740,750.00 

December 

1st, 

1917 

Coupon  26 

740,750.00 

June 

1st, 

1918 

Coupon  27 

740,750.00 

December 

1st 
otal 
31, 

1918 
Inters 
1918, 

Coupon  28 

740,750.00 

T 

iSt    

$  7,407,500.00 

Total   Debt 

December 

$44,445,000.00 

AMORTIZATION 

Government  to  pay  4.65';  of  total  bonds  issued.  After  paying  interest 
on  bonds  outstanding,  at  A'/r ,  the  balance  of  the  fund  to  be  used 
for  amortization  purposes.  Bonds  redeemed  if  quoted  at  par  or 
above  to  be  selected  by  semi-annual  drawings,  if  selling  belovr  par, 
to  be  purchased  in  open  market. 


164 


EXHIBIT    19 

5%  BONDS  STATE  OF  SINALOA  1906 
PRINCIPAL 


Authorized    Issue   ... 

P 

689,000.00 

Issued 

698,000.00 

Amortized  to   Decei 

nber  5,   1912 „ 

Bonds  Outstanding 

per  last  report 

206,500.00 

December  6,  1912,  1 

P. 

491,500.00 

Amortized   since  

24,800.00 

Balance    Outstanding 

December    31,    1918 

466,700.00 

INTEREST 

July           1st,  1914 

Coupon  15 

P.  11,667.50 

January   1st,  1915 

Coupon  16 

11,667.50 

July          1st,  1915 

Coupon  17 

11,667.50 

January   1st,  1916 

Coupon  18 

11,667.50 

July          1st,  1916 

Coupon  19 

11,667.50 

January   1st,  1917 

Coupon  20 

11,667.50 

July          1st,  1917 

Coupon  21 

11,667.50 

January   1st,  1918 

Coupon  22 

11,667.50 

July          1st,  1918 

Coupon  23 

11,667.50 

January  1st,  1919 

Coupon  24 

11,667.50 

P. 

Total   Interest  _ „.„ 

116,675.00 

Total  Debt 

December  31,  1918, 

583,375.00 

AMORTIZATION 

Amortization  fund  to  consist  of  2%  additional  customs  duties  collected 
in  the  Port  of  Mazatlan  and  pesos  1,250.00  contributed  jointly  by 
the  State  of  Sinaloa  and  the  Municipality  of  Mazatlan.  If  the 
customs  duties  are  not  sufficient,  the  State  and  Municipality  are 
required  to  make  up  the  difference — not  less  than  pesos  300,000.00 
per    annum    to    be    constituted    for   amortization    purposes. 


105 


EXHIBIT  20 

5%    BONDS    STATE    OF    TAMAULIPAS    1906 
SECOND  SERIES 

PRINCIPAL 


Authorized    Issue   _ - 

Issued    - - 

Amortized  to  December- 7,  1912 

December  8,  1912,  Bonds  Outstanding  per  last  report 
Amortized    since - 

December   31,    1918,    Balance    Outstanding 


INTEREST 


June 

30th, 

1914 

December 

31st, 

1914 

June 

30th, 

1915 

December 

31st, 

1915 

June 

30th, 

1916 

December 

31st, 

1916 

June 

30th, 

1917 

D'ecember 

31st, 

1917 

June 

30th, 

1918 

December 

31st, 

1918 

Total 

Interest 

Coupon  17 
Coupon  18 
Coupon  19 
Coupon  20 
Coupon  21 
Coupon  22 
Coupon  23 
Coupon  24 
Coupon  25 
Coupon  26 


P. 


19,915.00 
19,915.00 
19,915.00 
19,915.00 
19,915.00 
19,915.00 
19,915.00 
19,915.00 
19,915.00 
19,915.00 


December  31,   1918,   Total   Debt.. 


P.     950,000.00 

950,000.00 
122,300.00 


P.  827,700.00 
31,100.00 


796,600.00 


P.  199,150.00 
P.  995,750.00 


AMORTIZATION 

Amortization  fund  to  consist  of  2%  additional  customs  duties  collected 
in  the  Port  of  Tampico  after  first  loan  is  redeemed  and  balance  of 
water  taxes  after  paying  pesos  30,000  for  first  loan.  Payments  to 
Federal  Government  not  to  be  less  than  pesos  2,500  per  month 
from  July  1,  1917. 


106 


EXHIBIT  21 

5%  BONDS   STATE  OF  VERA  CRUZ   1906 
IMPROVEMENT    PUERTO   MEXICO 

PRINCIPAL 

Authorized „ P.  739,000.00 

Issued .-....- „ „ — 739,000.00 

Amortized  up  to  December  4,  1912 „ 61,000.00 

December  5,  1912,  Bonds  Outstanding  per  last  report P.  678,000.00 

Amortized  since  _ - 14,000.00 

December   31,    1918r,   Balance   Outstanding 664,000.00 


INTEREST 

June          30th, 

1914 

Coupon  15         P. 

16,600.00 

December  31st, 

1914 

Coupon  16 

16,600.00 

June          30th, 

1915 

Coupon  17 

16,600.00 

December  31st, 

1915 

Coupon  18 

16,600.00 

June           30th, 

1916 

Coupon  19 

16,600.00 

December  31st, 

1916 

Coupon  2U 

16,600.00 

June           30th, 

1917 

Coupon  21 

16,600.00 

December  31st, 

1917 

Coupon  22 

16,600.00 

June          30th, 

1918 

Coupon  23 

16,600.00 

December  31st, 

1918 
Interest 

Coupon  24 

16,600.00 

Total 

P.  166,000.00 
December  31,  1918,  Total  Debt _ - P.  830,000.00 

AMORTIZATION 

Amortization  fund  to  consist  of  2%  additional  customs  duties  collected 
at  Puerto  Mexico. 


107 


EXHIBIT  22 

4%  GOLD   LOAN  OF  1910 
DUE  1945 

PRINCIPAL 


Authorized    Issue    — — — — •• 

Amortized  to  July  1,  1912 - 

July  1,  1912,  Bonds  Outstanding  per  last  report 

Amortized  since - 


December   31,    1918,    Balance    Outstanding.. 


INTEREST 


June 

December 

June 

December 

June 

December 

June 

December 

June 

December 


1st, 
31st, 

1st, 
31st, 

1st, 
31st, 

1st, 
31st, 

1st, 
31st, 


1914 
1914 
1915 
1915 
1916 
1916 
1917 
1917 
1918 
1918 


Coupon  8 
Coupon  9 
Coupon  10 
Coupon  11 
CoujKjn  12 
Coupon  13 
Coupon  14 
Coupon  15 
Coupon  16 
Coupon  17 


5^77,835.60 
5,277,835.60 
5,277,835.60 
5,277,835.60 
5,277,835.60 
5,277,835.60 
5,277,835.60 
5,277,835.60 
5,277,835.60 
5,277,835.60 


Total    Interest 


F.  560,550,000. 

280,275,000. 
8,459,255, 

F.  271,815,745. 
7,923,965. 

F.  263,891,780 


December    31,    1918,    Total    Debt. 


F.  52,778,356. 
F.  316,670,136. 


AMORTIZATION 

Government  to  pay  5.37%  of  total  bonds  issued.  After  paying  interest 
on  bonds  outstanding  at  47c  per  annum,  the  balance  of  the  fund 
is  to  be  used  for  redemption  purposes.  Bonds  to  be  redeemed  at 
par  by  drawings,  if  selling  at  or  above  par,  or  to  be  purchased  at 
the  market  price  if  selling  below  par. 


108 


EXHIBIT   23 


6%  LOAN  OF  1913—10  YEARS 

PRINCIPAL 

Authorized    Issue 

Issued - 

USE  OF  PROCEEDS 

Sold  abroad  and  used  principally  to  pay  short  term 
indebtedness  of  President  Madero 

Issued   to   Local   Banks 

Issued  to  guarantee  interest  National  Railways  Bond 

Issued  to  DeKay  for  control  of  Mexican  National  Pack- 
ing Company  and  purchase  of  arms  in  Europe 

Total    „ 


£20,000,000-00-0 
17,943,360-  0-0 


£  6,000,000-  0-0 
7,406,730-  0-0 
1,361,050-  0-0 

3,175,580-  0-0 

£17,943,360-  0-0 


109 


EXHIBIT   21 

6%  TREASURY  BONDS  1914—10  YEARS 
PRINCIPAL 


Authorized    Issue 
Issued  


USE  OF  PROCEEDS 

Issued  to  guarantee  interest  on  Railway  Bonds _ 

Issued  to  guarantee  provisional  loan  of  P.  8,280,000.00 

Total  - - 


P.  60,000,000.00 


21,241,176.00 


P.  11,500,000.00 
9,741,176.00 

P.  21,241,176.00 


110 


EXHIBIT   25 

VERA  CRUZ  BONDS— 1917 
WITHOUT  INTEREST 


Amount  issued  up  to  December  7,  1918 

June  30,  1917,  Payments  on  Coupon  No.  1  P.  948,562.84 
June  30,  1918,  Payments  on  Coupon  No.  2         877,224.55 

Total  paid  up  to  December  7,  1918 P.  1,825,787.39 

Balance   due   2,942,885.61 

P.  4,768,673.00 


P.  4,768,673.00 


P.  4,768,673.00 


These  bonds  were  issued  to  redeem  the  Vera  Cruz  paper  currency 
at  the  rate  of  P.  10.00  paper  for  P.  1.00  Mexican  Gold. 

There  is  an  addition  P.  5,826,858.20  in  Vera  Cruz  paper  currency 
awaiting  conversion,  which,  at  the  rate  of  10  for  1  would  mean  an 
additional  debt  of  P.  582,685.82. 


Ill 


EXHIBIT   26 


BORROWED  FROM  BANKS  DURING  1917  AND  1918 


Amount   due    November   28,    1918,   per   statement  fur- 
nished by  Monetary  Commission — P.  53,155,733.95 


The    above    sum    was    borrowed    from    National    Bank    at    various 
times  since  November,  1916. 


112 


EXHIBIT   27 

GUARANTEES 

4%  GENERAL  MORTGAGE  BONDS  NATIONAL  RAILWAYS 


Bonds    Outstanding 


INTEREST 


As  per  Commercial  Statement  to  June  30,  1917,  a 

period  of  3   years „ _... 

June  30,  1917,  to  December  31,  1918,  11/2   years 


Principal  $50,748,575.00 

Interest „ 9,134,743.00 


$59,883,318.00 


$50,748,575.00 


$6,089,829.00 
3,044,914.00 

$9,134,743.00 


P.  101,497,150.00 
18,269,486.00 

P.  119,766,636.00 


Commercial  rate  of  exchange  pesos  2.00  for  1.00  dollar. 


113 


EXHIBIT   28 

GUARANTEES 
41/2%    GOLD   BONDS    CAJA    DE    PRESTAMOS 


Bonds    Outstanding 


INTEREST 


Balance  of  old  unpaid  coupons 

31/2  years  up  to  June  30,  1917 

11/2  years  from  June  30,  1917,  to  December  31,  1918.. 


Principal : $25,000,000.00 

Interest 5,643,661.50 


$30,643,661.50 


.     $25,000,000.00 


$  18,661.50 
3,937,500.00 
1,687,500.00 

5,643,661.50 


P.  50,000,000.00 
11,267,323.00 

P.  61,287,323.00 


Commercial  rate  of  exchange  pesos  2.00  for  1.00  dollar. 


114 


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Bancroft,  Hubert  Howe. — Popular  History  of  Mexico.     New  York,  1914. 

Casasus,  Joaquin  D. — ^Historia  de  la  Deuda  Contraida  en  Londres. 
Mexico,  1885. 

Carranza,  General  Venustiano. — Message  to  the  Mexiican  Congress,  April 
15,  1917.     Mexico,  1918. 

Castillo,  Juan. — Coleccion  de  Leyes,  Decretos,  Reglamentos,  Contratos, 
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Hall,   W.   E. — Treatise   on   International    Law.     6th   Edition.     1910. 

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Mexico. — Secretaria  de  Hacienda.  Informe  al  Congreso  de  la  Union 
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Mexico.— Secretaria  de  Hacienda.  Informe  que  en  complimento  del 
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Mexico. — Secretaria  de  Hacienda.  Informe  al  Congreso  de  la  Union 
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